ORAL ANSWERS TO QUESTIONS

WORK AND PENSIONS

The Secretary of State was asked—

Get Britain Working

Chris Skidmore: How many young people have received support through the Get Britain Working programme to date.

Mark Hoban: Between January 2011 and November 2012, about 106,000 young people aged between 18 and 24 received support through Get Britain Working, including work experience and sector-based work academies. Many young people have also benefited from the help offered through volunteering, and work and enterprise clubs.

Chris Skidmore: Job clubs and job fairs play an important role in the Get Britain Working scheme. In Kingswood, as the local Member of Parliament, I have organised four job fairs so far, as well as running a weekly job club. Does my hon. Friend agree that we as MPs have a vital role to play in Get Britain Working by organising job fairs and job clubs and getting our constituents back to work?

Mark Hoban: My hon. Friend is well known for his support for getting young people into work, and I commend him on the job club and job fairs that he has run. As a result of the collective effort between employers, Members of Parliament, Jobcentre Plus and others, youth unemployment today is lower than it was in May 2010.

Barry Sheerman: Does the Minister not realise that however good some of these programmes are—and some of them are quite good—we are not doing enough? Nearly a million young people are unemployed. There must be more imagination. Could we not agree on a cross-party basis that we must not allow young people to fester in unemployment any longer?

Mark Hoban: No one should be complacent about the challenge that young people are facing, but I should point out to the hon. Gentleman that, if full-time students are excluded, 66,000 more young people have been in work over the last quarter. We are seeing more progress, but we must not be complacent, and we must not forget that the problem started some time ago.

Philip Hollobone: What progress is being made with sector-based work academies? Which sectors are being targeted, and in which parts of the country?

Mark Hoban: My hon. Friend is right to point out what an important part of our programme sector-based work academies represent. They provide a combination of work experience, training and a guaranteed job interview. Jobcentre Plus will work closely with employers throughout the country to organise the right type of sector-based work academies, but I encourage Members to work with jobcentres to identify good opportunities in that regard.

Sheila Gilmore: A constituent of mine, aged 20, has spent a year and a quarter on the Work programme, and has had six meetings with three different advisers during that time. He still has no job, and has had no job offers. He eventually found a Barnardo’s course, but was told that he would not be allowed to go on it because he was on the Work programme. Is the programme not failing such young people?

Mark Hoban: I think the hon. Lady should raise issues about training in Scotland with the Scottish Government, who are responsible for it. They will not allow people on the Work programme to go on Scottish Government-funded courses, and I suspect that that is where the problem lies.

Pension Liberation Schemes

Grahame Morris: What steps he is taking to tackle the increased use of pension liberation schemes.

Steve Webb: We take the issue of so-called pension liberation very seriously. The Pensions Regulator is currently investigating 21 cases, and scheme assets worth over £50 million have been protected as a result of regulatory action.

Grahame Morris: Many pension liberation schemes are skimming off thousands of pounds in charges and commissions, and leaving customers exposed to punitive tax penalties. In the wake of mis-selling scandals such as that involving payment protection insurance, what action is the Minister taking to ensure that future pensioners are protected?

Steve Webb: The hon. Gentleman is right. When people transfer money from a pension, they must fill in transfer forms. We have established a “scorpion sting in the tail” information campaign, producing very eye-catching literature which people wishing to transfer their money receive before signing on the dotted line. It is a “buyer beware” measure, and is one of a suite of measures that we are taking to crack down on such fraud.

Andrew Bridgen: Many participants in pension liberation schemes pay extremely high interest rates on any loans that are taken out, and residual funds are invested at the discretion of the trustees, which can lead to insecure or poor investment decisions. Does my hon. Friend agree that that is in no one’s long-term financial interests?

Steve Webb: My hon. Friend is right. We are warning people to be extremely wary. In general, they should not get their money out before they reach the age of 55, except in the event of, for instance, terminal illness. Trustees need to be wary, and participants need to be wary. Those who spot fraud should report it, and we will continue to crack down on it.

Gisela Stuart: Some £400 million has been liberated illegally from pension funds, and all that the rather incurious Minister is saying is that he has produced some rather catchy literature. Is that sufficient?

Steve Webb: If that were all we had done, no of course it would not be. Many of the Government’s anti-fraud authorities, including, among others, the Serious Fraud Office, are working with us. One of the challenges is that the money is sometimes transferred overseas, where we have less jurisdiction. However, what we need is trustees not to be transferring money—authorising the transfer of money—out into suspicious pension funds. So trustees have a part to play, as do scheme members.

Women’s Single-Tier Pensions

Ian Murray: What recent assessment he has made of the effects of the Government’s proposal for a single-tier pension on women born between 6 April 1952 and 6 July 1953.

Catherine McKinnell: What recent assessment he has made of the effects of the Government’s proposal for a single-tier pension on women born between 6 April 1952 and 6 July 1953.

Kate Green: What recent assessment he has made of the effects of the Government’s proposal for a single-tier pension on women born between 6 April 1952 and 6 July 1953.

Heidi Alexander: What recent assessment he has made of the effects of the Government’s proposal for a single-tier pension on women born between 6 April 1952 and 6 July 1953.

Steve Webb: With permission, I will answer this along with Questions 7, 8 and 16.
	We have today published a document analysing the pension outcomes of this group of women. Overwhelmingly, women in this group—who reach state pension age up to three years before a man born the same day—would get more pension benefits over their lives than a man with the same national insurance record.

Mr Speaker: The Minister is a man of formidable intellect and therefore I hesitate ordinarily to disagree with him, but I think that the grouping is with Questions 6, 7 and 16. I hope he does not mind.

Ian Murray: The Minister may have a formidable intellect but I am going to disagree with him. As he will know, half a million women born between 1952 and 1953, many of whom will have celebrated mother’s day yesterday, will lose out on this single-tier pension. Will he apologise to the 700 women in my constituency who are affected and have written to me? Will he do something before they lose out?

Steve Webb: I take your correction on the question numbers, Mr Speaker.
	I think that the hon. Gentleman should apologise to the 700 women in his constituency, as he seems to be asking us to treat them the same as a man born on the same day—that appears to be the essence of his problem.
	If we did that, those women would have to wait up to three years longer for their pension, and they would not thank him for that.

Catherine McKinnell: Some 1,700 women in Newcastle will miss out on the single-tier pension, yet men born in the same period will qualify. Claiming that those women are better off because they are allowed to retire earlier is simply not good enough. If they are retired for 20 years, they could lose up to £38,000, which is well over twice what they would receive through benefiting from retiring earlier. What message does this send out to the hard-working women of Newcastle, many of whom celebrated not only mother’s day yesterday, but international women’s day on Friday?

Steve Webb: The message it sends out is that their MP did not listen a moment ago. We have published research today that shows that 85% of these women will do better over their entire retirement—both the first few years and their entire retirement.

Catherine McKinnell: indicated dissent.

Steve Webb: Unless the hon. Lady has read the research, I do not know why she should be shaking her head. It says that 85% will do better by being treated as women than they would by being treated the same as men.

Kate Green: You and I, Mr Speaker, have just had the great pleasure of welcoming a rather beautiful portrait of Emmeline Pankhurst to Parliament, and I hope that all colleagues will want to go to admire it in the Upper Waiting Hall. It is important that we remind ourselves that women’s political interests can sometimes be different from men’s, and I am grateful to have the chance to ask the Minister about his pension proposals and their implications for women today. Many women will struggle to achieve 35 years of full employment and full contributions, partly because of caring responsibilities and also because of labour market discrimination. What steps does he intend to take to address that disadvantage?

Steve Webb: As the hon. Lady says, we have a system of not only paid contributions, but credits. Although 35 years will be needed for the full £144, even a woman with 30 years will get thirty thirty-fifths of £144, which is more than the current basic pension of £107. So, many women will benefit from the new rules.

Heidi Alexander: The Minister says that 85% of women will benefit under the proposals that he has announced today, but what about the 15% who do not?

Steve Webb: It is gratifying that the main Opposition response to our proposals is that they want more people to benefit from them. The hon. Lady is right: there is a set of women—a small number of women—who would do better under the new system than the old, but overwhelmingly the vast majority will do better under the current system. She raises an issue about allowing people to choose whichever was the better, but it is not always certain—at the moment—what the better answer would be for their entire retirement. So we could not actually advise people in advance which category they would be in.

Jane Ellison: The Minister might be aware that during the pre-legislative scrutiny of the Bill there has been considerable confusion about how much some of these women would lose. There is considerable misunderstanding out there, so could he provide some clarity in this area?

Steve Webb: I am looking forward to two hours with the Select Committee this afternoon after this warm-up. My hon. Friend is absolutely right, in that some of the women in the group we are talking about will miss out on nearly £20,000 of pension if they were to be treated the same as a man born on the same day. I think that very few of them would think that a good deal.

Gordon Birtwistle: Does my hon. Friend agree that the reforms to the state pension will be advantageous to women in the future?

Steve Webb: Absolutely. The process of state pension reform was happening at a glacial pace and equality between men and women was many decades away. We have brought that equality forward and men and women on both sides of the House should welcome that fact.

Nigel Mills: We look forward to seeing the Minister later. Does he agree that one of the problems is that people just do not understand what the change will mean for them? What plans do the Government have to write to everybody to tell them what pension they would have received under the old system and what they will receive under the new one?

Steve Webb: My hon. Friend is right to say that information will be crucial. One thing we have been doing with the changes to the state pension age, for example, is writing to the individuals affected so that they know exactly what position they are in. All too often in the past, laws have been passed, no one has been told and it has taken many years for people to find out about it. An information campaign will be central to taking forward these excellent proposals.

Gregg McClymont: The Minister has so far provided cold comfort for the 429,000 women who will not benefit from the new state pension when men of precisely the same age will. May I ask the Minister about a specific group of 80,000 women who are represented in Parliament today? Under the Pensions Act 2011, which this Government passed, their retirement age increased with little notice. Now they will miss out on the Government’s proposed new pension with an average loss to the tune of £9 per week. Is it fair to penalise these women twice in two years?

Steve Webb: To be clear about the particular group to which the hon. Gentleman refers, their pension ages increased by a maximum of six months under the 2011 Act. The vast majority of those 80,000 would be worse off if we treated them the same as men, which is what he seems to be calling for. I was not clear what else he was calling for, but treating them the same as men would leave them worse off than they are now.

Housing Benefit Changes

Adam Holloway: What assessment he has made of the availability of one-bedroom homes for single-person households to downsize to following the housing benefit changes due to take effect in April 2013.

Iain Duncan Smith: There are about 400,000 working age households on housing benefit in under-occupied social housing in Great Britain who require just one bedroom according to the size criteria. There are more than 1.1 million one-bedroom properties in the social rented sector in England and 730,000 one-bedroom properties in the private rented sector. The availability of housing varies from area to area and is constantly changing. During 2011-12, there were about 112,000 new lettings of one-bedroom properties in England in the social rented sector alone.

Adam Holloway: Will there be an improvement in the position of disabled children in Gravesham under the spare room subsidy?

Iain Duncan Smith: My hon. Friend makes an important point. As the law stands, when a local authority agrees that a family needs an extra bedroom because their child’s disability means that they are unable to share, the family can be entitled to the spare room subsidy in respect of that extra bedroom. As with housing benefit claims, the determination of whether their disability requires them to have an extra bedroom is a matter for the local authority to decide with the help of DWP guidance and medical evidence. This week we will issue final guidance to local authorities on a number of areas, including this one, that will confirm the position that the judgment in Burnip, Trengove and Gorry applies to both the social rented sector and the private rented sector.

Bill Esterson: One effect of the Secretary of State’s policy is that foster carers who have a spare bedroom and are waiting for a child to be placed must move to a smaller property without the space for them to foster. Is that what he intended?

Iain Duncan Smith: As the hon. Gentleman will know, we have made discretionary payments of £5 million available for foster carers to ensure that that does not happen. The effect for foster carers, as we move forward, will be that they will not have to change the number of rooms or their property as they will be able to remain there and to foster. That is what the policy will be.

Greg Mulholland: My right hon. Friend and the Prime Minister have acknowledged that some of the spare rooms are not spare by acknowledging the need for discretionary housing payments. May I urge my right hon. Friend to reconsider whether some of those categories could and should be covered by genuine full exemptions?

Iain Duncan Smith: As I have just explained, one of those categories—severely disabled children—is covered and the guidance coming out tomorrow will make it very clear that we will apply that judicial judgment
	across the board to children with severe disabilities who need that extra room as they are unable to share. I shall keep everything under review and I guarantee to my hon. Friend that we will ensure that the intent of the change is bound up in how it takes effect in so far as the spare rooms will be kept for those who need them. Honestly, however, when so many houses have spare rooms and when so many people are in queues to get housing, it would seem wrong to go on subsidising everybody to stay the same.

Anne Begg: Is it fair to penalise someone who had wanted a one-bedroom property, had asked their local authority for a one-bedroom property, but instead was given a two or three-bedroom property because there simply were no one-bedroom properties available?

Iain Duncan Smith: The purpose of the policy is to readjust the disparity that exists and that lay there under the previous Government. Local housing allowance for social tenants in the private rented sector does not and did not allow people to have spare rooms. In the social sector there are a large number of houses that people occupy without occupying all the rooms, so the purpose is to get that smoothed out. A number of councils have people waiting for housing, people in overcrowding, while others are subsidised to have spare rooms in housing that they do not need.

Andrea Leadsom: Will my right hon. Friend confirm that there will be discretionary payments available to councils to meet particular needs? Does he agree that it is despicable for Opposition Members to be scaremongering unnecessarily and scaring people who are in a vulnerable position already?

Iain Duncan Smith: The Opposition know what they have been about over the past few weeks. They have deliberately set about trying to confuse people with their ridiculous title. They have tried to confuse people that they will all come under this change, when only those on housing benefit will be affected, and they also seemed to indicate to many others, such as pensioners, that they were not exempt. They are exempt.

Ian Austin: Is it not the case that there just are not enough homes for people hit by the bedroom tax? The Government promised, and the Secretary of State said a moment ago, that pensioners would not be affected, but those on universal credit will be. Soldiers’ families will not get full housing benefit, but someone who is sent to prison could keep every penny. The Government are hitting pensioners but safeguarding prisoners, so how can it be right that if someone has worked hard all their life and loses their job, or if someone is serving their country or is disabled or a pensioner, they could lose out?

Iain Duncan Smith: I do wish the hon. Gentleman would get his facts right. Convicted prisoners are not exempt, so he is wrong. With respect, he does not know the difference between someone on remand and someone convicted—[Interruption.]

Mr Speaker: Order. The hon. Member for Dudley North (Ian Austin) is noisier in heckling the Secretary of State than he was in heckling me at Essex university 30 years ago. He needs to calm down.

Iain Duncan Smith: With respect, Mr Speaker, the hon. Gentleman’s noise covers a complete lack of intelligence. That is what I would say. Let me bring something forward—[Interruption.] No, monkeys can jump around, but the noise they make is not necessarily relevant. Let me tell the hon. Gentleman about his own area. In Dudley, which I think he might know, the National Housing Federation estimates that there are 2,000 households under-occupying—in other words, with spare rooms. It also estimates that there are 1,500 families in overcrowded accommodation. In other words, if property is properly managed, we might get those who are overcrowded into decent-size accommodation. When will the Opposition moan about that?

Under-occupancy (Disabled People)

Cathy Jamieson: What recent assessment he has made of the likely effects of the under-occupancy penalty on households that include a disabled person.

Esther McVey: Let us be clear. The spare room subsidiary is not a penalty and it is not a tax. It is the result of, and a solution to, the inequality of treatment between those in the private rented and the social rented sector. The fact that housing benefit doubled in the past 10 years and the sheer imbalance in the system that we inherited resulted in 1.8 million people on waiting lists, 250,000 in overcrowded houses, and 1 million spare rooms in the system, when 180,000 claimants who are claiming disability living allowance, or whose partners are doing so, have spare rooms.

Cathy Jamieson: I thank the Minister for that answer, although I do not think it addresses the question. Disabled people in my constituency are coming to see me terrified about the implications of having to find additional money every week, so what can the Minister say about the disabled people who are contacting the local authority in my area to be told that they may not get a discretionary payment and that, even if they do, it may not last for the full year? Does she have any words of comfort for them?

Esther McVey: The hon. Lady, like all of us, has a duty to allay those fears, and it is something that we can all do. We know that so many specific instances could not be regulated clearly in law, hence we have trebled the discretionary payment to take into account all these factors. We know that pensioners are exempt and that we are helping, obviously, severely disabled children, and we have made clear all those who are being assisted. It is our duty to make sure that facts are clearly spelled out, and those who are most in need will be supported.

Duncan Hames: I know from my own constituency case load that Wiltshire council is often persuaded that families with disabled children can require an additional room in order to meet their needs. Will the Minister clarify the earlier answer to the
	hon. Member for Gravesham (Mr Holloway)? Is it the Government’s position that these families will be reliant on discretionary payments, or is it indeed the case that they will not see their housing benefit cut?

Esther McVey: If the disabled child cannot share and there is impact on another child, if they need that room, that room will be provided for, as the Secretary of State has said and in accordance with the local authorities.

Ian Paisley Jnr: I thank the Secretary of State and the Minister for their answers today. This policy will affect all parts of the United Kingdom irrespective of the devolved settlement in Northern Ireland. On the assessment and the figures that have been presented today, is the Minister able to say something about how many people will be affected in Northern Ireland, given that there is a complete lack of single bedroom homes, both in the private and public sector, in Northern Ireland?

Esther McVey: I will be very happy to write to the hon. Gentleman with the exact numbers for Northern Ireland. I can say, from the money that has been made available through the discretionary payments, that we will be supporting those most in need, as we have said so clearly throughout today.

Anne McGuire: Given that the Prime Minister continues to state that families with disabled children or with family members as carers will somehow be exempt from the bedroom tax—and before the Minister reaches for her brief and tells me once more about the discretionary fund, she needs to realise that it is time limited and there is not enough in the fund—will the Minister advise the House whether the Prime Minister is pulling the wool over the public’s eyes, or has she abrogated her responsibilities as the Minister with responsibility for disabled people and not told them the exact impact of his Government’s policies?

Esther McVey: In line with the judgment, the Prime Minister was correct. We have clarified today that they will have the room and they will not need to move.

Troubled Families Programme

Ann Coffey: What recent representations he has received on the sharing of data on missing children in the Troubled Families programme.

Iain Duncan Smith: My Department plays a vital role in the cross-Government programme to turn around the lives of our most troubled families, a matter on which the hon. Lady has a long track record. Although I have not received any representations on sharing data on missing children, as we do not deal with them particularly, we are committed to building a clearer picture across Government of how many children are missing from care and where they go. We will begin piloting new arrangements shortly.

Ann Coffey: I thank the Secretary of State for that answer. As he will be aware, children going missing is a key indicator of being at risk of child sexual exploitation,
	and he will also know that information on children going missing from troubled families is under-reported. Will he ensure, together with his colleagues in other Departments, that data on missing and absent children is collected and shared properly, so that children from troubled families at risk of coming to harm can be identified, helped as early as possible, and not end up in the care system?

Iain Duncan Smith: Yes. I congratulate the hon. Lady on focusing on this across all the Departments, as I am aware that she has asked this question to a number of Departments. She is absolutely right. We do need to co-ordinate much better between Departments. As she knows, this is an historical issue for different Governments. The Department for Education chairs the data working group, which includes the Home Office, the Serious Organised Crime Agency, and the Children’s Society. I understand that my right hon. Friend the Secretary of State for Communities and Local Government is also involved. That should help to improve the collection and publication of data. The pilot will begin shortly to see that we sort this out. She is right that we must do more to improve data as part of the missing children strategy and make sure that we get it right.

Housing Benefit (Under-25s)

Peter Bone: If he will bring forward proposals to restrict eligibility for housing benefit for people aged under 25.

Iain Duncan Smith: In June last year the Prime Minister commenced a debate on the cost to the taxpayer of meeting the £2 billion bill for automatic entitlement to housing benefit for people aged under 25. Although that is not current Government policy, I have had a number of representations on the issue—not from the Opposition, but from others.

Peter Bone: If the Prime Minister and the Secretary of State are in favour, I cannot understand why that is not Government policy. With so many under-25s who are hard-working having to stay at home with their parents, why are the Government spending £1.8 billion a year housing under-25s who are on benefits? I cannot see how that is fair.

Iain Duncan Smith: My hon. Friend is right that the bill for under-25s in receipt of housing benefit is in the order of £2 billion a year. Some 370,000 under-25s claim housing benefit, and 42% of them are without children. However, the reality is that when we looked at that in the round prior to the spending review, it was agreed that it was not a priority area for the coalition. No doubt he will continue to campaign for it to be a priority area, and I am very happy to discuss the matter with him.

David Lammy: The Secretary of State has decided to move forward with his benefit cap in four pilot areas in London. How much has he decided to compensate Haringey council for making it a guinea pig in that way?

Iain Duncan Smith: I do not believe that there is any need to compensate anybody. We have already told all those councils that they are not guinea pigs; they are actually getting very close support and advice. I think that it will be a tremendous success story. What they are doing is learning, along with us, about any issues that might arise, and we have already said very clearly that we will support them through any extra costs and expenses. The right hon. Gentleman’s party has to recognise that the reality is that the cap is right. The public support it because they are tired of seeing people getting more on benefits that those who are in work, so setting the cap is right. He needs to ask why his party keeps voting against it.

Julian Huppert: I and my Liberal Democrat colleagues are delighted that that proposal did not become Government policy and will happily keep making representations on it. Although it would be wonderful if all under-25s had a loving and stable family to live with, does the Secretary of State accept that that is simply not the case? Will he meet the YMCA to understand the realities facing many under-25s and continue to provide them with the support they need to have somewhere to live?

Iain Duncan Smith: Yes, I would be very happy to meet my hon. Friend and any group of people, such as the YMCA, he wishes to bring to me. I simply say this: we have a significant problem, because we inherited a welfare budget approaching £200 billion that had risen out of control under the previous Government. He is fully aware that we have to reform it both to get people back to work and to ensure that we get the cost under control. Those are all areas we have looked at, but in those discussions we decided that, in the round, it was not a priority.

Stephen Timms: On Friday morning I met a 19-year-old autistic young women whose family home, which is rented from the council, with housing benefit, has been adapted at public expense, but now they are very worried because they are deemed to have one bedroom too many. Surely the bedroom tax should not apply when a council house has been specifically adapted for the occupants at public expense.

Iain Duncan Smith: The right hon. Gentleman knows very well that that is the point of discretionary housing payments—[Interruption.] Opposition Members can groan, but we have put more money into discretionary payments to sort these things out than they ever did when they brought these in. The reality is that there is money for them to do just that. I remind him that the National Housing Federation has estimated that in his area of Newham some 3,000 people are under-occupying and some 5,000 are overcrowded. Perhaps he would like to take his own side to task for never doing a thing for those struggling in overcrowded accommodation.

Long-term Unemployment

Stephen Hepburn: What steps he is taking to tackle long-term unemployment.

Mark Hoban: Long-term unemployment fell by 15,000 last month. Our main initiative to help get
	people who are long-term unemployed into work is the Work programme. In the period to September 2012, 200,000 people found work as a consequence of the Work programme.

Stephen Hepburn: Long-term unemployment in my constituency went up by 67% last year. Does that not tell us exactly what the Tories are like in this country today? Will the Minister stand up, put his hands up and admit that the policies of the millionaires in government are totally failing the ordinary people of this country?

Mark Hoban: I would have thought that the hon. Gentleman would want to celebrate the fact that an additional 21,000 people in the north-east are in work compared with a year ago. Yes, there are deep-seated challenges in the north-east, but I am confident that progress is being made in rebalancing the economy, and that is down to the strength of the private sector.

Nick Gibb: May I ask my hon. Friend what happens when someone who is long-term unemployed rings Worthing benefits centre given its failure to return calls within even the three-hour performance target and its failure to meet the target of processing 85% of employment and support allowance payments within the target of 16 days? What action is being taken to remedy the position, and when does he anticipate that the centre will be meeting all its performance targets?

Mark Hoban: My hon. Friend is right to highlight the issues at Worthing benefits centre. As a consequence of a very high level of applications for ESA, there is some pressure on performance at the centre. Work is being done to help tackle the backlog and to get back to the 85% level. Managers from the Department are happy to meet my hon. Friend to discuss the situation.

Unemployment

Robert Halfon: What assessment he has made of recent trends in unemployment.

James Wharton: What assessment he has made of recent trends in unemployment.

Mark Hoban: Unemployment has been falling in each of the last 11 months; on the International Labour Organisation measure it is down by 156,000. The unemployment rate is now lower than it was in 2010. This is testament to the strength of the private sector, which has created 1 million net new jobs since May 2010.

Robert Halfon: My hon. Friend will be aware that Tesco has announced the closure of a huge depot in Harlow, with the possible loss of 800 jobs. Will he work constructively with the Union of Shop, Distributive and Allied Workers, which is trying to ensure that the workers who are offered jobs in other plants get the same pay and conditions?

Mark Hoban: I can assure my hon. Friend that Jobcentre Plus is working with Tesco and has offered full rapid response team support. Discussions are focusing on redeployment and other opportunities to help the work force to secure new jobs.

James Wharton: In Stockton South youth unemployment has fallen from 11.3% to 9.6% January to January. This is a welcome trend, but I would like it to go further. What are the Government doing to ensure that it can continue over the coming year?

Mark Hoban: I am delighted to welcome the news of what is happening in Stockton South. That is in contrast to what has happened in Jarrow, but it demonstrates the resilience of the economy in the north-east. The fact that 40,000 extra private sector jobs have been created in the north-east over the past couple of years demonstrates that while there are difficult challenges, the economy is rebalancing, and that should be to the benefit of everyone there.

Wayne David: Will the Minister kindly tell the House how many young people are unemployed?

Mark Hoban: According to the ILO measure, 974,000 young people are unemployed, about 300,000 of whom are full-time students. Over the past few months there has been an increase of 66,000 in the number of young people in work.

Alison McGovern: The Minister mentioned the so-called 1 million new jobs. With reference to the labour force survey, will he tell me how many of those so-called new jobs arise from reclassification and how many represent people who are under-employed?

Mark Hoban: If the hon. Lady looks at the labour force survey, she will see that the figure is 1 million net new jobs. She talks about people being under-employed. I hope that she is not being condescending to those of her constituents and mine who are working part-time and want to work part-time.

John Stevenson: Does the Minister agree that the economic success and, indeed, the social success of places like Carlisle depend on the creation of private sector jobs? Will he confirm that to help to achieve this he will ensure that it is always better financially to be in employment than on benefits?

Mark Hoban: That is absolutely at the heart of the roll-out of universal credit, which will mean that people know that they are better off in work, and better off working more hours and earning more than working fewer hours and earning less. That incentive to get paid work is at the heart of our welfare reforms.

Housing Benefit (Amendment) Regulations 2012

Katy Clark: If he will reconsider the decision not to include residential properties owned by local authorities for temporary accommodation in the definition of temporary accommodation contained in the Housing Benefit (Amendment) Regulations 2012.

Steve Webb: From 8 April, people living in temporary accommodation will, in most cases, be unaffected by the removal of the spare room subsidy in the social rented sector. However, where a local authority’s own temporary accommodation is used, the spare room subsidy will be removed if the tenant is placed in accommodation that is larger than they need.

Katy Clark: In North Ayrshire the council owns 63% of the accommodation used as temporary accommodation, and the bedroom tax will apply to approximately two thirds of those properties. Will the Minister look again at the definition of temporary accommodation, given that this policy will simply mean that local authorities end up spending a lot more on less suitable accommodation from the private sector?

Steve Webb: We think that local authorities using their own stock to discharge their homelessness function should, wherever possible, house people in appropriately sized accommodation. If there are short-term problems in matching families to accommodation size, discretionary payments are available and can be used to support any shortfall a local authority may experience.

Eilidh Whiteford: Half of all the temporary accommodation in Scotland is council-owned and the accommodation size reflects the existing housing stock and a varying range of needs in that sector. The discretionary housing budget in Scotland will not even cover the cost of keeping disabled people in specially adapted homes, so in no way will it cover the needs of people in temporary accommodation. Will the Government look again at this and reconsider what I can only assume is an unintended consequence or an oversight?

Steve Webb: The hon. Lady raises the important issue of the mismatch between the housing stock and families who need housing. That has gone unaddressed for decades and we now need to address it. We recognise that there may be particular issues in Scotland, partly with rurality and partly with the housing stock, and we are happy to continue having that conversation with hon. Members.

Benefit Payment Methods

Mark Pawsey: What arrangements his Department is making for benefit payments to people who are unable to receive them through a bank or building society account.

Iain Duncan Smith: People who are unable to receive benefit payments through a bank or building society account are paid under the new simple payment. The service is easily accessible and is available free of charge and over the counter at more than 10,000 PayPoint outlets across the UK. The phased roll-out of simple payment began in October 2012 and we are closely monitoring the service to ensure that people can access their payments.

Mark Pawsey: I recently met a constituent of mine who wishes to receive his pension payment in cash but has had some difficulty in doing so since the transition
	from cheques to simple payment. What support is available for people such as my constituent?

Iain Duncan Smith: The contract is working very well across the board at the moment. About 99% of all claimants are getting their money as required at the right time, and 95% are within 1 mile of outlets, or within 5 miles in rural areas. It is, therefore, better than the previous system and it is also cheaper. The last cheque system cost £30 million and was defrauded to the cost of about £5 million; this costs about £7 million.
	Immediate responsibility for the individual mentioned by my hon. Friend lies with PayPoint and the bank. They have a responsibility to ensure that cash is available at every location. We take them to task over that and they will have to make restitution.

Disabled Entrepreneurs

Glyn Davies: What plans he has to support disabled entrepreneurs.

Esther McVey: We offer a range of support to help disabled people get and stay in work, including Work Choice, the Work programme and Access to Work. In fact, we have extended Access to Work to make it available to disabled people setting up businesses though the new enterprise allowance.

Glyn Davies: Investment in disabled people’s user-led organisations has proved very helpful to disabled people, but does my hon. Friend accept that it is crucial for the coalition Government’s commitment to delivering fairness that we build on this policy?

Esther McVey: I share my hon. Friend’s views about disabled people’s user-led organisations, which is why we have put £3 million aside—£2.2 million has been spent so far—to support programmes that are being built by such organisations. I have been impressed with the innovative designs that have resulted from that, including, most recently, an app called Georgie, which was designed by a blind person and is now being manufactured and used across the country.

Digital Exclusion (Universal Credit)

Michael Fabricant: What plans he has to tackle the potential for digital exclusion under his plans for universal credit; and if he will make a statement.

Iain Duncan Smith: It is important to recognise that 80% of existing benefit claimants already use the internet. For the minority who do not, we are helping them move online by, for example, working with digital champions, testing the new universal credit system with more than 6,200 real claimants to date, and developing a local support framework to ensure bespoke services. Even before universal credit is introduced, we are seeing the effect of this change.

Michael Fabricant: My right hon. Friend gives a good indication of the progress being made, but he will know that a number of people who are applying for universal
	credit and, indeed, other benefits will not have access to a computer, technical skills or even broadband. What sort of support is he giving them?

Iain Duncan Smith: We have put—and will continue to do so—large numbers of internet access devices in jobcentres, so people will automatically get help and support when they go in. We are talking and working with local authorities to ensure that people will be able to gain immediate access through libraries and all other local authority outlets. We are also working with individuals to make sure that those who have computers at home fully understand how to use the system. The truth is that this will be helpful. The Opposition seem to occasionally miss the fact that 92% of advertised vacancies require basic IT skills and that if people do not have the ability to go on a computer, they cannot apply for the job.

Mr Speaker: I call Mr Ruffley. Not here.

Out-of-work Benefits

Jeremy Lefroy: How many people are in receipt of out-of-work benefits; and what assessment he has made of the level of inactivity in (a) Stafford constituency and (b) England.

Mark Hoban: The proportion of people who are in work or looking for work is the highest for more than two decades, and the number of people who are claiming the main out-of-work benefits has fallen by 230,000 since 2010. In Stafford, about 5,000 people are claiming one of those benefits, which is down on the year and down since 2010.

Jeremy Lefroy: Last month, inactivity fell to the lowest rate since 1991 at just 22.3% of the working-age population. What has contributed to that fall?

Mark Hoban: There is a range of factors, including the resilience of the private sector in creating jobs and the fact that people are able to work more flexibly and thereby manage health conditions and look after children while working part time. The Government have had a relentless focus on using welfare reform to encourage more people to look for jobs and move into work. The benefit of that is starting to flow through.

Topical Questions

Clive Betts: If he will make a statement on his departmental responsibilities.

Iain Duncan Smith: I welcome the recent introduction of mandation to universal jobmatch, which means that Jobcentre Plus advisers can mandate jobseekers to use the new service to help them find work and require them to demonstrate their progress. More than 2 million jobseekers are now registered, which is twice the number when I last updated the House. That shows just how quickly the system is revolutionising how jobseekers look for work.

Clive Betts: This question was raised with me by my constituent, Mr Leonard Jolicoeur. He asked whether it is true that someone who is of pensionable age when the new single-tier pension comes in and who has a small occupational pension and therefore does not receive pension credit will get the existing state pension, but that someone who is in exactly the same financial circumstances and becomes of pensionable age after the single-tier pension comes in will get the new single-tier pension, which is some £40 a week more. What can the Minister say to persuade my constituent that it is fair or reasonable for somebody who is in exactly the same financial circumstances as his neighbour to get £40 a week more than him?

Steve Webb: That is not what would happen. People who have contracted out into an occupational pension, such as his constituent, currently get money off their state pension, which is called a contracted-out deduction. That will remain part of the single-tier proposition. Therefore, somebody such as his constituent who has contracted out would not get the £144. There is no cliff edge. There would be a deduction for past contracting out in both cases.

Andrea Leadsom: Does my right hon. Friend agree that for Opposition Members to talk of the spare bedroom subsidy as a tax shows a profound lack of understanding on their part of what a tax actually is?

Mr Speaker: Order. I say gently to the hon. Lady that Ministers have no responsibility for the Opposition’s use of terminology. It is better that we leave it there. There has been a very full exchange on that subject.

Liam Byrne: May I start by thanking the Secretary of State for briefing me and my right hon. Friend the Member for East Ham (Stephen Timms) on his plans for urgent legislation, about which his Department has commented in The Daily Telegraph this morning? Both he and I believe that sanctions are vital to give back-to-work programmes their bite. However, when he signed off the 2011 regulations that created sanctions for the Work programme, why did he not check that they were legally bullet proof?

Iain Duncan Smith: The right hon. Gentleman knows that the advice that we received made it very clear that the regulations would survive a challenge, and that was the view that we took. As he knows, the High Court upheld our position. It was the Court of Appeal that decided, on quite a technical line, to change that position. The position on human rights was upheld, as was the main point of our direction of travel.

Liam Byrne: I do not think that it is a technical challenge when three Court of Appeal judges unanimously quash the 2011 regulations because they are not in line with the law. That mistake puts in jeopardy about £100 million of sanctions that have been issued. I did not think that the Work programme could get any worse, but it has. We will support wise and sensible legislation that will fix the problem, but will the Secretary of State take personal responsibility and apologise for this mess, which may cost twice as much as the west coast main line fiasco?

Iain Duncan Smith: The right hon. Gentleman knows very well that when Ministers make regulations, they take the fullest advice possible. That advice came to us; it was checked and it said that the regulations were fine. The High Court upheld them. It was the Appeal Court that decided that an element of that was not correct.
	I do not wish to make this a political issue, and I take full responsibility for everything that goes on in my Department. I accept that we wish we were not in this position, but if the right hon. Gentleman supports the idea that people who have been mandated to do work, should take jobs and do work experience once they have volunteered without messing around otherwise they lose their benefit, I hope that we can look forward to his supporting the legislation that will ensure that we do not have to pay out money against a judgment that we never anticipated.

Edward Leigh: Is the Secretary of State aware that Conservative Members support his courage and his battles in trying to reduce the crippling burden of the social security budget? In particular, may I commend his quiet courtesy this weekend in reminding the Archbishop of Canterbury that trapping people in dependency is not necessarily a Christian response? What the Secretary of State is doing is a good and positive way of making work pay.

Iain Duncan Smith: I am grateful to my hon. Friend. I have no issue whatever with the Church of England and the bishops saying whatever they believe. It is right and proper that they should argue with us and put pressure on us on a variety of issues. However, I do not agree that the way to get children out of poverty is to keep transferring more and more money to keeping people out of work. The reality is that we are having to reform a system that became completely out of control under the last Government and get in place a system that gets people back to work, because being in work is how people get their children out of poverty.

Sheila Gilmore: Mandatory reconsideration after employment and support allowance is refused and when somebody wants to appeal can lead to people being without either ESA or jobseeker’s allowance. Will the Minister ensure that a short time limit is set on reconsiderations so that people are not left without any income?

Mark Hoban: Mandatory reconsideration is in place to help accelerate decision making, so that the Department can revisit a case rather than have to wait for it to go to the tribunal. We try to keep delays as short as possible to ensure that we get the right outcome and get the right support to people as quickly as possible.

Paul Uppal: As the Minister may be aware, the number of private sector jobs in the west midlands decreased under the last Labour Government. Will he welcome the news, as I do, that Jaguar Land Rover is increasing investment in the engine plant in Wolverhampton by £150 million, creating an additional 700 high-skilled jobs?

Mark Hoban: My hon. Friend is right to celebrate the achievements of Jaguar Land Rover. In national apprenticeship week, I commend him for his work to promote apprenticeships in his constituency. He is right, and he points the way towards how a private sector-led recovery can increase employment. That is why we have seen 107,000 additional jobs in the west midlands.

Ann McKechin: Local housing associations in my area are deeply concerned about their ability to provide services as a result of this year’s welfare changes. What assessment will the Secretary of State make of their credit ratings, both this year and next? Does he expect them to go down the way?

Iain Duncan Smith: The best thing for me to do is to ensure that I write to the hon. Lady properly and place the reply in the Library of the House.

Glyn Davies: Last week we discussed in the House the treatment of women across the world. To deliver equality and fairness of treatment in the United Kingdom, we must ensure equal access to work and remuneration. Does my hon. Friend agree that it is important to make a continuing assessment of the number of women in work?

Mark Hoban: My hon. Friend will celebrate, as I did on international women’s day, the fact that there are record numbers of women in work and that the number of women unemployed has fallen by 29,000 over the past year. We need to do more to get women in work, and universal credit will help, but it is important also to celebrate the flexibility of the labour market, which enables more and more people to work part time to meet their responsibilities.

Jim Cunningham: Why is the Secretary of State disregarding research by the National Housing Federation which shows that the discretionary fund to provide help with the bedroom tax is £100 million short of what is required?

Iain Duncan Smith: We are not. We listen to councils and everybody else who talks to us about these things, and ensure that we adjust accordingly. In reality, more than £280 million is going in discretionary payments direct to councils over two years to resolve these issues. That is more than ever before and I believe it is enough. We are asking councils to make sensible judgments that benefit the maximum number of people—tenants and those on housing benefit—in their areas.

Shailesh Vara: What assessment has the Minister made of the support available to disabled people through the Access to Work programme?

Esther McVey: Last year 30,000 disabled people were supported through Access to Work. We have extended that programme and added an extra £15 million, and it is working very well.

Hywel Williams: This afternoon I received a message in my inbox that was sent to all MPs and marked “importance: high”. It said that one-bedroom apartments, located in the most convenient and sought-after positions in the heart of St James’s, and including a spacious reception, double bedroom and fitted kitchen, were advertised at £390 per week although the landlord would take an offer to fall-in with the parliamentary allowance. Would the Secretary of State advise one of my Caernarfon constituents, currently luxuriating in a two-bedroom flat, to apply?

Iain Duncan Smith: No, I would not, and I hope that nobody else in the Chamber would be able to apply either—otherwise we may find out exactly what they are worth. The changes we are making with the spare room subsidy are to get rid of the subsidy that ordinary taxpayers are paying for people to under-occupy houses while many others live in overcrowded accommodation.

Stewart Jackson: There is significant concern across the country about the likelihood of welfare dependency as a result of immigration from Romania and Bulgaria from January 2014. Will the Minister look urgently at the habitual residence test within the context of the free movement directive and ensure that such issues are addressed in good time?

Mark Hoban: I assure my hon. Friend that we apply a habitual residence test to see whether people moving from other EU states are entitled to means-tested benefits. We will continue to look at that test and at what more can be done to strengthen it.

Susan Elan Jones: Will the Secretary of State consider introducing a compulsory jobs guarantee for people who have been unemployed for two years or more?

Mark Hoban: The hon. Lady should be commended for trying to trot out a policy that I thought the Opposition had dropped two or three weeks ago. When such a scheme was piloted under the previous Government, it demonstrated that it was not good value for money or good for the unemployed. The hon. Lady should welcome the measures the Government are taking to get people into work. That is why record numbers of people are in work and unemployment has continued to fall for 11 months in a row.

Philip Davies: Although the Labour party thinks that the benefit cap is too low, the majority of my constituents think it is far too high. May I urge the Secretary of State to ignore the left-wing bishops, who probably do not even speak for the majority of people who go to church each week, let alone the vast majority of the British people?

Iain Duncan Smith: I listen to everybody who gives me advice although I do not necessarily follow it. The Government are doing the right thing in bringing in a benefit cap, and for the first time ever people on low and average earnings will realise that at last those on benefits will not be paid more through their taxes than they themselves earn.

Andy Sawford: I met the mother of Hayden, a three-year old boy in my constituency, who has just received a letter stating that she must now pay the bedroom tax. Hayden has sleep difficulties and often has disturbed nights. Should he be forced to share a room with his four-year-old sister who will now also be disturbed, or will it all be okay because there is a tiny amount of discretionary funding?

Iain Duncan Smith: I do wonder that the Labour party, which sat in government for 13 years, never once raised the issue of people living in overcrowded accommodation, and never once seemed to care that huge numbers of people were on the waiting list. Nevertheless, Labour Members bleat about those who are under-occupying and are being subsidised by poorer people who cannot find accommodation.

David Mowat: The Pensions Minister will have seen the recent press coverage about the high margins generated by annuity providers. That comes as no surprise given the complete market failure that has occurred in large parts of the private pension industry. Will he consider imposing a uniform product structure—as has been done in energy—and will he enforce legally the open market option?

Steve Webb: My hon. Friend has a good track record of challenging the issue of charges and value for money. The Association of British Insurers has just published its code of practice, to which members have to sign up, to ensure that instead of people just defaulting to the provider they save with, they shop around. We will monitor closely whether that makes the market more effective. [Interruption.] Opposition Members are shouting “Do something”, but they did not do something when they were in power.

William Bain: A constituent I met on Saturday is a divorced lone parent who works hard for a low income, and his children stay with him on three evenings a week. Why does the Secretary of State believe that such a hard-working individual should lose £12 a week under his hateful bedroom tax?

Iain Duncan Smith: Again, another hon. Member who does not know the difference between a subsidy and a tax. The reality is that those who do not occupy all the rooms in social housing are being subsidised by many of those who live in overcrowded accommodation. Let me remind the hon. Gentleman—Opposition Members do not like to be reminded—that under local housing allowance for the private social rented sector, which was introduced by the previous Labour Government, people were not allowed to occupy houses that had spare bedrooms.

Julian Huppert: The Government’s under-occupancy policy relies on people being able to move into appropriately-sized housing, but in specific parts of the country that is very hard to achieve. Does the Secretary of State agree that no benefit reduction should take place until people have at least been offered somewhere appropriately sized and located? Will he make sure that there is enough discretionary housing budget for councils to ensure that that is the case?

Iain Duncan Smith: I agree, particularly with the last part of the question. We have set aside £280 million over two years for councils to be able to negotiate and work out with their tenants the best and most amenable way to go. My hon. Friend’s question is constructive, in sharp contrast to the Opposition. All they can do is moan about a policy, but in 13 years they did nothing about overcrowding, with the lowest level of house building since the 1920s.

Helen Goodman: When the bedroom tax is introduced in my constituency, some people, who will be unable to move because properties are not available, will be left with £18 a week to live on. During the recess, I tried that to see what it would be
	like. I have had a lot of messages from members of the public asking me one question: will the Secretary of State try for a week to live on £18?

Iain Duncan Smith: When we made changes to local housing allowance, the hon. Lady and others prophesised that hundreds of thousands of people would be made homeless—they went up and down the country scaring everybody. The figures now show that our homeless figures are lower than the peak under the previous Labour Government.

Several hon. Members: rose—

Mr Speaker: Order. I am sorry, but we must now move on.

Overseas Aid (Private Sector Contracts)

Ivan Lewis: (Urgent Question): To ask the Secretary of State for International Development to make a statement on her Department’s policy on tied aid, and the criteria applied to private sector contracts in the light of briefings over the weekend and her recent speech to business leaders at the London stock exchange.

Justine Greening: I am delighted to update the House on my speech today. There is no change on the Government’s policy on tied aid. I was clear in my speech on 7 February, and again this morning when I said:
	“I am not talking about tied aid. I do not believe that is the way to achieve good, sustainable development...It’s the wrong way to go about things.”
	That answers the hon. Gentleman’s first point.
	Department for International Development contracts are awarded in line with EU procurement regulations. The vast majority are subject to competitive tender. The evaluation process for large contracts includes an assessment of technical and commercial criteria, which are published at the outset of the tender. That answers his second question.
	In relation to today’s speech on pursuing poverty reduction and an end to aid dependency through jobs, it is clear that economic growth is vital in developing countries. Wherever long-term per capita growth has been higher than 3%, we have seen significant falls in poverty. Sustainable public services in the developing world, as here in the UK, need a funding stream of tax receipts, and that means a thriving private sector. Today, therefore, I have been discussing how DFID will put increased emphasis on economic development, including through reducing overall barriers to trade and investment; unlocking the ability of entrepreneurs and business people in developing countries to drive economic growth through their own businesses; and fostering greater investment by business in developing countries and those in the UK. I want more businesses, including those in the UK, to join the development push with DFID. We all have the opportunity to help build up responsible trade with developing countries.
	Finally, may I welcome the positive response from organisations such as CARE International and the Overseas Development Institute? The former said that
	“it’s no longer an option for development agencies to view business as operating in a parallel universe”.

Ivan Lewis: I would say to the Secretary of State that economic growth matters in all countries, although I thank her for her response, despite the fact that these policies should have been announced to the House first.
	This year should have been a source of unity and pride for decent Members on both sides of the House and many campaigners across the country. This year, Britain should once again have been a light unto the nations, with the Government honouring Labour’s historic 0.7% commitment. Instead, over the past fortnight, we have seen two cynical interventions that threaten to undermine the UK’s global reputation for progressive development: first, the Prime Minister’s suggestion
	that holes in the defence budget would be plugged by aid money; and, secondly, the Secretary of State’s ill- advised briefings over the weekend, ahead of her speech today.
	We support the private sector’s central role in stimulating jobs and growth in developing countries and welcome the fact that UK companies are seeking to access growing markets, but we are vehemently against tied aid, trickle-down economics and growth that has no focus on inequality or sustainability. I have several questions for the Secretary of State, therefore: first, why did she brief a return to tied aid over the weekend yet deny it today? Secondly, will she assure the House that no company engaged in tax dodging will receive any funding or support from DFID? Thirdly, will she confirm whether companies that are to receive DFID support will have to demonstrate decent employment practices, including acceptable levels of pay to workers in developing countries, throughout their supply chain? Fourthly, under what circumstances does she think that a British company should be awarded a contract in a developing country without having to compete in a fair and transparent tendering process?
	As a substantial increase in the DFID budget is set to take effect, these interventions have nothing to do with the national interest or our commitment to the world’s poorest, but are an act of desperation by a Prime Minister who once earned cross-party respect for making the moral case for aid. He is now so weak that he is reduced to misleading the British people that UK aid in the future will largely be devoted to defence and UK business. The big society is gone, the green agenda is gone and now sound development policy has been undermined to satisfy the Tea party tendency in his party. It is the same old Tories.

Justine Greening: The Member asking an urgent question normally has some additional questions, but I do not think the hon. Gentleman asked any. He talked about the Daily Mail. We know from his time with the shadow Culture, Media and Sport brief that he is keen on muzzling the press. I noticed that, in spite of all his rhetoric, ultimately he supports what I am saying about getting business more involved in the development push. I must remind him, however, that it was this Government, not the previous Government, who set up a private sector department within DFID. He had 13 years to do that, but failed.
	I also noticed how quickly the hon. Gentleman turned to highlighting the risks of businesses getting involved in development. The Government seek to mitigate those risks and are working hard on initiatives on transparency and governance. He will be aware of the ethical trading initiative, which looks at how we can ensure that companies get involved responsibly. I want to set out today not only how we can take steps to mitigate those risks, but how we can tap into the huge opportunities that business, particularly UK business, can offer developing countries to help them develop and, in doing so, lift the poorest people out of poverty. I believe that is not just in the UK national interest—although frankly it is in our national interest to be market-making and to see more economies in this world that we can trade in—but in those people’s interest too. Men or women in developing countries say they have one top priority: to get a job. We can work with business on that.

Gerald Howarth: I welcome my right hon. Friend’s statement this afternoon, but given that the £11 billion that she will have at her disposal this year comes entirely from the pockets of her, my and our collective constituents, is it not right that, wherever possible, it should be returned to British companies that offer first-class equipment and services to overseas countries, which are the beneficiaries of British taxpayers’ aid?

Justine Greening: UK companies have a key role to play. In fact, my hon. Friend will be interested to know that, in terms of their value, more than 90% of the contracts awarded by the Government go to UK companies. That is probably because those companies out-compete other companies, but also because we have a strong corporate governance structure, which many other countries seek to emulate.

Tom Clarke: But is the Minister aware that there are genuine concerns that the objective of 0.7% of gross national income is being swallowed up—or might be—by it being diverted to the Ministry of Defence or some other Department? Does she not agree that development is about removing poverty and ensuring sustainable development? If we are to be convinced that the Government are on the right road, can we have some of the transparency that was promised, for example, in the International Development (Reporting and Transparency) Act 2006?

Justine Greening: On the right hon. Gentleman’s last point, we do have transparency. In fact, I think I am right in saying that my Department was rated as the most transparent organisation in the series of stakeholder organisations involved in development. In answer to his earlier question, he will be aware that the definition of official development assistance—as set out by the OECD and monitored by the development assistance committee, or DAC, the organisation that brings together donors—is clear cut, and we will stay within it.

Peter Bone: May I thank the shadow Minister for asking the question? I would like him to ask a lot more parliamentary questions such as that, because it is great to give the Secretary of State’s speeches a more widespread audience. She is absolutely right: the answer to the problem is not aid, but trade.

Justine Greening: I agree with my hon. Friend; indeed, so would the Indian Finance Minister, who said aid is the past, trade is the future. This is about ending aid dependency by driving growth and job creation.

Stephen Doughty: The Secretary of State may wish to correct the record on the private sector team: there has been one in DFID for a number of years. After the Budget next week, will the proportion of the 0.7% commitment spent by Departments other than DFID—if they meet it—be increased, and if so by how much? Will she also confirm that all our spending will be in line with the terms of the International Development Act 2002?

Justine Greening: Our spending will be in line with the International Development Act 2002 and the ODA definition. The split of ODA across Departments can
	change. As the hon. Gentleman knows, we have done a lot of work with the Foreign Office and the Ministry of Defence in conflict and in fragile states. We will continue to look at how we can do that effectively, but I think I am less interested in where ODA sits than I am in the impact it has on the ground. If he really cares about getting the most out of the budget we have got, I hope he will prioritise that over taking cheap political shots.

Martin Horwood: I welcome the Secretary of State’s statement. Drawing on my experience in Oxfam, rather than the Labour party’s sources in the Daily Mail, does she agree that private sector decisions have a disproportionate impact on people’s lives, for good or ill, and that we have to engage with the private sector to have a complete view of development?

Justine Greening: My hon. Friend is absolutely right. Major companies in the UK such as M&S know this as well—that is why it has NGOs such as Oxfam on its sustainable retail advisory board. It seems that the only people who have not caught up are the Opposition.

Gavin Shuker: May I commend the Secretary of State for her courageous commitment to the 0.7% target, but say to her that the way to appease those on the Benches behind her who do not want that commitment to go through is not to try to sound right wing on aid, but to take on the argument?

Justine Greening: We have been making the case for international development, and I would say to the hon. Gentleman that what I have announced is what I think is the right thing to do; it is not about how I want to please anybody in the House.

Fiona Bruce: I thank the Secretary of State for her announcement. Does she agree that many developing countries fundamentally aspire to the dignity of moving out of donor dependency, and that one of the best ways in which we can help them to do that is by strengthening their private sector? What role does she see for parliamentarians and for businesses in our local constituencies, following her policy announcement today?

Justine Greening: I agree with my hon. Friend about the impact that economic growth and jobs can have on reducing recipient country dependency. The President of Liberia, Ellen Johnson Sirleaf, has said that aid should not be an alternative to self-sufficiency. Developing countries want to plough their own furrow and take control of their own destiny. We want to reach out beyond the large companies with which we are already working, such as M&S, Diageo, Tesco, Sainsbury’s and other stock exchange-listed companies, to the small and medium-sized companies in Britain, to see whether we can get a broader base of companies to join the development push.

Richard Burden: Along with other members of the International Development Committee, I have just come back from Ethiopia, and I can tell the Secretary of State that DFID staff are already working with colleagues in other Government Departments to try to involve British business in development. There is nothing wrong with that, but will
	she accept that there is no easy line to be drawn between tied aid and untied aid? We have only to look at the way in which the United States’ development efforts work to understand the truth of that. The Tea party tendency that my hon. Friend the Member for Bury South (Mr Lewis) referred to is alive and well in her party, so how will she prevent her announcement today from being used in some quarters to—

Mr Speaker: Order. I think we have the gist of the hon. Gentleman’s question.

Justine Greening: The US Agency for International Development—USAID—would accept that part of its development spend takes the form of tied aid, but I have made it very clear that that is not what I am talking about here. I know that the hon. Gentleman finds this issue complex, and I accept that there are risks that we will need to manage, but they can be managed. Instead of seeing only the risks, we should see the opportunities too.

Tim Loughton: I commend my right hon. Friend for her patience when listening to such sanctimonious drivel from the other side. Does she agree that while well-targeted aid from agencies can alleviate poverty and suffering in the short term, it is only through private business helping to eliminate poverty through micro-finance and through using private ownership, private innovation and private employment that we can achieve a long-term solution to the poverty that she and I are both striving to eliminate?

Justine Greening: My hon. Friend is absolutely right. There is another reason that the involvement of the smallest companies in developing countries is so important. Many of them are agricultural smallholdings run by women, and we know that if they can invest in and grow those businesses, 90% of the income will be reinvested in their families and communities, providing a double bonus.

Fiona O'Donnell: In her response to the shadow Secretary of State, the right hon. Lady rightly mentioned the need to increase tax receipts in developing countries and to have responsible trade. Has she had any discussions with the Chancellor of the Exchequer to advance those two causes ahead of next week’s Budget?

Justine Greening: The hon. Lady might have seen that I have today set out our plans to work with Her Majesty’s Revenue and Customs to set up a tax capacity-building unit, which will provide tax expertise to developing countries to help them to broaden their tax base and improve their tax collection. The Chancellor has made it clear that we want to see real progress on tax and tax transparency at the G8, which is why they are on the agenda.

Pauline Latham: The hon. Member for Birmingham, Northfield (Richard Burden) and I came back from Ethiopia last week. A company called Pittards is investing money from this country to upskill people there—it has helped 1,500 so far and it wants to get up to 5,000. It is paying more than the
	minimum wage. Does the Secretary of State agree that that is the best way for companies to invest, to get the right products coming back to this country and exported all over the world, and to get women into better jobs?

Justine Greening: I completely agree. My hon. Friend has provided a really good example of how this can work in practice. Another good example would be Taylors of Harrogate, which has worked to improve its tea collection and tea capability in Rwanda. It has not only improved things but brought about new products that benefit us all. This is a really practical way of lifting the poorest people in developing countries out of poverty—not just through cash transfers, but by genuinely providing them with what they want: a job.

Andrew Gwynne: I was pleased to hear the Secretary of State refer to ethical standards in her response to my hon. Friend the Member for Bury South (Mr Lewis). Will she outline what standards her Department requires private sector-led DFID projects to meet in respect of work and labour?

Justine Greening: In my answer to the shadow Secretary of State, I set out the criteria we use for giving out contracts. We need to engage with the CBI—we have already had initial meetings—on how to get a more structured approach to responsibly engaging business in the development push. It is right to point out that there is a good way and a bad way of doing this, as the hon. Member for Denton and Reddish (Andrew Gwynne) says. The key thing for today is to engage in a process, working with the CBI, industry federation bodies, non-governmental organisations and stakeholders, business schools around Britain and other communities, about how to develop a proper strategy for getting business involved in the development push. That is what I want to see happen. To date, we have done a number of ad hoc projects, but now we need to pull them together and develop a more holistic strategy.

Henry Bellingham: I congratulate the Secretary of State on her excellent speech this morning, and I particularly welcome what she said about relieving poverty through trade. Does she agree that one of the best ways of unlocking wealth creation is through free trade agreements in developing countries? Would she particularly welcome Trademark East Africa, a Southern African Development Community- led tripartite agreement?

Justine Greening: Yes, I would. DFID has supported the Trademark East Africa initiative, and my hon. Friend will be aware that African Union leaders want to create a free trade area by 2017. It is an ambitious plan, but one that we should support.

Kevin Brennan: Last Friday, I received a group of constituents from the IF campaign, Enough Food for Everyone, who asked me to seek assurances from the Government and the Secretary of State that the commitment to the 0.7% gross national income figure remains as strong as ever, and that she will resist any attempts to overturn it. What words of assurance can she give to my constituents?

Justine Greening: I think we can be judged by our deeds, and also by the fact that I am wearing an IF campaign bracelet here today.

Jeremy Lefroy: As chairman of the all-party group on Tanzania, I can say that the UK is the biggest investor and one of the biggest traders with, and donors to, Tanzania. Does my right hon. Friend agree that aid does not need to be tied to be beneficial to the UK?

Justine Greening: My hon. Friend is absolutely right. We are talking about having a balanced approach with these countries, developing their public sector, but also helping them to develop their private sector. He is right to say that, ultimately, that is the best way to see change on the ground. I would like to see UK business and companies getting more involved with that as a means of supporting it.

Chris Bryant: Contrary to some of the rhetoric we have heard from the Government on immigration, the vectors that lead to people from these countries coming to this country and elsewhere in Europe are not the benefit system, but poverty, famine, war and insecurity in their own countries. Surely, then, part of our argument to people who are worried about our spending money on development must be that it is in our best interests to enable people to live a decent, healthy life in their home and stay there.

Justine Greening: I never thought I would say this, but I agree with the hon. Gentleman!

James Duddridge: Does the Secretary of State agree that it is somewhat surprising to see the Opposition Front-Bench team being so negative, because this project builds on the good work done not just by this Secretary of State and the previous Secretary of State, my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell), but by the last Labour Government? In fact, the best example I can find of this succeeding was started by the last Labour Government, so perhaps they should be praising us. I refer to the Vodafone and M-Pesa deal—the type of deal we should do a lot more of, yet exactly the type of deal they are criticising today.

Justine Greening: I agree: it is pretty bizarre. I think that we should ramp up this work, because it can have real benefits for people in developing countries. I thank my hon. Friend for his interest and his efforts, which have been incredibly important.

Eilidh Whiteford: Last week the Secretary of State spoke about the needs of women and girls in the context of development. What explicit commitments to gender equality have been built into the Government’s plans to promote economic growth and responsible trade in developing countries, and how will that be measured?

Justine Greening: Ensuring that we understand the impact of our programmes on women and girls is increasingly dependent on our obtaining good facts—in other words, gender-disaggregated data. All our country programmes involve thinking about how the work that
	we do affects women and girls. When discussing our economic development strategy with business leaders this morning, I made clear to them that the issue of women and girls is perhaps the most powerful in driving changes on the ground, not just short-term changes through the alleviation of poverty but changes in attitudes towards women.

Mark Pritchard: I congratulate the Secretary of State on her excellent statement. I believe that the current millennium development goals expire in 2015, and that—as discussed in Liberia—economic development may be one of the new goals. In my view, the public sector does not have all the answers and neither does the private sector. Might not a combination of public and private deliver some of the answers for sustainable development?

Justine Greening: My hon. Friend is absolutely right. No one can achieve this agenda on their own. We have been working on it, but we must increasingly work on it together, adopting a single strategy rather than disparate parts. I agree with CARE that we should stop working in, as it were, a parallel universe with businesses, and start working in the same world.

Jane Ellison: Before entering Parliament, I worked for one of many good private sector companies, the John Lewis Partnership, which, through both John Lewis and Waitrose, does terrific work with suppliers overseas. Does my right hon. Friend agree that it is rather depressing that the Labour party has so little faith in the ability of such private sector companies to do good in relation to this agenda?

Justine Greening: My hon. Friend is very well placed to ask that question, and she is entirely right. I think that we should be proud of the work of companies such as John Lewis and Waitrose, which not only makes business sense for them but makes a huge difference to the thousands of young people whom they are not only employing but “skilling up” in countries such as South Africa. We are delighted to be working with Waitrose. It is projects of that kind that have led me to announce today that I want to do more, and to do it in a more structured way.
	Let me also thank my hon. Friend for the incredibly important work that she has been doing in raising awareness of female genital mutilation.

Geoffrey Clifton-Brown: Does my right hon. Friend agree that the public sector is often too large in the poorest countries in the world? Is not the best way in which her Department can help to release people from poverty sustainably to create a climate in which the private sector in those countries can flourish? Has that not been proved in countries such as Vietnam?

Justine Greening: My hon. Friend is right. Part of DFID’s work involves helping to create developing-country environments that are, as it were, “investable in”. That means pursuing the Prime Minister’s “golden thread” agenda in relation to the rule of law, the ability to set up contracts and the establishment of the right legal base. Those will all be key ingredients if we are to see business flourish in developing economies.

Damian Hinds: Does my right hon. Friend agree with the business leaders who are quoted in today’s Financial Times as saying that the prospects of the world’s poorest people are increasingly being defined by what businesses do, alongside the established work of Governments? Cannot private sector development simultaneously help those people, and economies throughout the rest of the world—including our own—through specialisation, trade and economic growth?

Justine Greening: The short answers to that question are yes and yes. As was pointed out in the Financial Times, aid and business constitute a crucial alliance, which we must try to bind more closely.

Richard Fuller: It is no surprise, is it, that the Labour party’s hostility to the private sector led Opposition Members to miss my right hon. Friend’s observation that ignoring that sector’s role in development was like trying to win a football match by leaving half one’s team on the bench? Can she add to her excellent list of initiatives an initiative to tap the entrepreneurial potential of Britain’s various diaspora communities by supporting development in their countries of origin?

Justine Greening: My hon. Friend will not be surprised to hear that this issue was raised after my speech in this morning’s question and answer session, and it is an incredibly powerful one. I believe that this country has more natural links to many of these developing economies than almost any other country in the world. We should be making the most of those and allowing our diasporas also to be part of helping the countries to which they have family links to develop.

Graham Stuart: Trade with the developing world was an insufficient priority of the previous Administration, yet it is economic dynamism, not dependency, that our development spend should be seeking to encourage. I congratulate my right hon. Friend on her speech. Does she agree that British education companies have a key role to play in developing the economic strength of developing countries, which will be good both for them and for us?

Justine Greening: I do agree and, for example, we are talking with Pearson about how we can work more closely with it in places such as Pakistan. A number of sectors in our country’s economy have real value to add. We have talked a lot about retail today, but education is yet another sector where we have so much knowledge and so many skills. We can pass those things on to developing economies, and it is in everybody’s interests to do so.

Andrew Jones: I welcome my right hon. Friend’s statement, and I noted her mention of my former employer, Taylors of Harrogate, in both her speech this morning and in the
	House this afternoon. Does she agree that trade and partnership, thus creating sustainable economic growth, is the key to taking people out of poverty?

Justine Greening: It certainly is, and statistically we have seen that that equation absolutely holds. As anybody who has ever been to Harrogate will be aware, it is definitely worth while dropping into Bettys, where people can sample some fantastic Taylors of Harrogate tea.

Glyn Davies: I congratulate the Secretary of State and the Prime Minister on their continuing commitment to standing by our international obligations to United Nations targets. Does the Secretary of State accept that it is crucial to focus on effectiveness, flexibility and value for money in each situation? Does she agree that that will be done sometimes through supporting security and sometimes through humanitarian aid, but always by using the dynamism of the private sector to maximise the long-term impact?

Justine Greening: My hon. Friend is right. Even when we are building up core basic services, the innovation of the private sector has a real role to play, and my Department has sought to tap into that. There is a strategic question about what we need to do for ourselves and what expertise we buy in from outside, but there is no doubt a key role for the private sector to play.

Gavin Williamson: Will my right hon. Friend use her position to encourage both her Department and the many aid organisations that it supports and funds to start buying more British-manufactured vehicles? Far too often we see foreign-manufactured vehicles being purchased by aid organisations, even though we all know that the best 4x4s are manufactured in the midlands and have a Land Rover badge on the front of them.

Justine Greening: My hon. Friend has made his point, and I am sure that the non-governmental organisations will have been listening to this urgent question and will have taken note accordingly. As I have said, we aim to get best value for the taxpayer, and I am sure that in many cases that best value is indeed British.

David Mowat: Fifty years ago, South Korea had the same GDP per head as Ghana and now its figure is about the same as the UK’s. This has been achieved by trade, not principally aid. What more could the Department do to ensure that there are more South Koreas—we hope in sub-Saharan Africa—in the next 50 years?

Justine Greening: In the past decade, sub-Saharan Africa has probably had one of the fastest growth rates in the global economy. As my speech set out, and as my hon. Friend rightly says, we need to do more work in this area and to work in the business environment to really drive economic development and jobs.

Point of Order

Chris Bryant: On a point of order, Mr Speaker. You will recall that last year the Prime Minister said that he wanted to be as open and transparent as possible about public meetings held by Ministers and that Ministers would publish all meetings with outside bodies on a quarterly basis. You will also recall—I remember you were in the Chair at the time—that earlier this year the Secretary of State for Culture, Media and Sport said that they were being published in the usual fashion and that if they were not she would ensure that they were. It now transpires that the Prime Minister’s meetings with the proprietors and editors of national newspapers were not published until very recently for any date beyond last June. Now we have the information for up until September. This very afternoon, serious decisions are being made about what should be done to implement the Leveson inquiry and to introduce legislation to this House. Will you confirm that the Secretary of State for Culture, Media and Sport could, if she wanted, either hasten the publication of further information so that we all know exactly who the Prime Minister has been meeting with, or correct the record, as what she said earlier this year was not strictly speaking accurate?

Mr Speaker: It would be open to the Secretary of State to opt for either of the courses of action that the hon. Gentleman has helpfully described. We will leave it there.

Financial Services (Banking Reform) Bill

[Relevant documents: The First Report from the Parliamentary Commission on Banking Standards, HC848, and the Government response thereto, Cm 8545; and the Second Report from the Parliamentary Commission on Banking Standards,Banking reform: towards the right structure, HC 1012.]
	Second Reading

Greg Clark: I beg to move, That the Bill be now read a Second time.
	The Bill has a simple objective at its heart, which is to answer what the Chancellor has called the British dilemma: how can Britain be one of the world’s leading financial centres without exposing ordinary working people in this country to the terrible costs of banks failing?
	Let me illustrate both sides of the dilemma. The financial services sector is one of our most important industries. Together with related services, it employs around 2 million people in this country, two thirds of whom work outside London. Even in the recession, financial services contribute about £1 in every £8 of government revenue to pay for public services. The industry is by far our biggest exporter, generating last year a £47 billion surplus from overseas trade and providing us with vital foreign exchange earnings.

Andrew Love: The Chancellor is on record as saying that this is a critical piece of legislation if we are to get the banking system right, yet he chooses not to appear before us today. There has been no explanation of why the Chancellor is not in the Chamber. Could the right hon. Gentleman give us one?

Greg Clark: I should have thought it was reasonable for the Financial Secretary to the Treasury to introduce a Bill on financial services.
	Let me continue to make my point. The financial services sector is of great importance to Britain, but that importance carries risks for this country. At their peak, the banks’ balance sheets amounted to 500% of UK GDP, compared with 100% in the US and 300% in France and Germany. In 2008, for example, the Royal Bank of Scotland was the biggest bank in the world and, as we all know, Britain also witnessed the first bank run for more than a century, with depositors queuing in the streets to get their savings out of Northern Rock. RBS and HBOS had to be bailed out, with £65 billion of taxpayers’ money needed to shore up the banks.
	The system of regulation failed, as did the culture of the banking sector, in not preventing and resolving the crisis without recourse to taxpayers’ money or otherwise putting people’s deposits at risk. That is why fundamental reform was needed, the first pillar of which has been put in place through the passage of the Financial Services Act 2012, which received Royal Assent in December and establishes a clear and distinct role for prudential regulation and conduct regulation, a role that was blurred and ineffective.
	The Bill is the second pillar of those reforms and it reflects the considered views of no fewer than two expert commissions. The first, chaired by Sir John Vickers, was the Independent Commission on Banking, whereas
	the second, chaired by my hon. Friend the Member for Chichester (Mr Tyrie), was the Parliamentary Commission on Banking Standards, on which many Members of the House served.
	Let me say something about the process we followed, briefly summarise how the Bill reflects the recommendations of each commission and then explain in some detail the rationale for the few remaining areas in which the Government’s proposed approach differs.

Alison McGovern: In his discussion of the process, will the Financial Secretary explain why, given that the crash in 2008 to which the Bill is a response was one of the most momentous economic events in my lifetime and the lifetimes of many people, and given the importance of its proposals, the Chancellor did not see fit to lead the debate today?

Greg Clark: I am disappointed that my presence here does not satisfy the hon. Lady. The Chancellor trusts his Financial Secretary to speak at the Dispatch Box. I do not know how it is in the Opposition.

Christopher Leslie: Will the Minister at least tell us where the Chancellor is? Is he watching on television? Is he doing some shopping or knitting? What is going on? Where is the Chancellor right now?

Greg Clark: I should have thought that the hon. Gentleman would reflect on the fact that the Chancellor has many serious responsibilities and he is discharging them at the moment.
	Let me talk about the process that we have followed, then I will address in some detail the particular aspects of content. The process that we have followed has sought to come up with the best possible way to address the dilemma that I described, and to do so by building, as far as possible, a broad consensus. That may not be there—yet—on every particular, but I think most Members would concede that Sir John Vickers’ commission has come closer to achieving that than many people thought possible.
	The Independent Commission on Banking was established as soon as possible after the general election, in June 2010. It took extensive evidence before publishing an issues paper in September 2010 and an interim report in April 2011, on which it consulted, before publishing its final report in September 2011. The Government gave, and consulted on, an initial response in December 2011, before issuing a White Paper for consultation in June 2012. In the light of the responses to the consultation, a draft Bill was published last October and the Parliamentary Commission on Banking Standards was asked to subject it to pre-legislative scrutiny. The parliamentary commission’s report was published on 21 December last year and many of its recommendations were accepted in the Bill published in February and laid before the House.
	At the time of introduction, I made it clear from the Dispatch Box that we would table further amendments in response to the commission’s future recommendations as the Bill proceeds through both Houses. I hope that Members on all sides would agree that this has been an exceptionally extensive process of both policy development and scrutiny of emerging proposals, and I repeat what
	I said to the right hon. Member for Wolverhampton South East (Mr McFadden) last month, that I will personally insist on taking a constructive and open-minded approach to the views of this House throughout the Bill’s passage. To the extent that the Bill reflects the unanimous views of Parliament, it is immeasurably strengthened.

Kelvin Hopkins: Does the Minister accept that one of the major factors in the 2008 crisis was the complete failure of the auditing sector to get a grip on what banks were doing? Will he be putting forward proposals for strengthening audit for the future?

Greg Clark: That was not a set of particular recommendations in the reports that were commissioned, but I know that it is of some interest to members of the parliamentary commission and, as I will go on to say, we stand ready to consider their further recommendations, and I dare say they might have something to say in that respect.

Christopher Leslie: I want to pick up on the Minister’s statement that he wants to take this parliamentary process seriously and listen to the debates. If that is the case, why on earth has he ignored the clear recommendation of the Parliamentary Commission on Banking Standards that there should be a three-month gap between the publication of the Bill and the Committee stage in the House of Commons? We will not have a Committee stage at a time when we can fully take account of the final recommendations of the commission. Is that not totally contemptuous of the Commons parliamentary procedures? Perhaps that is why the Chancellor has not turned up for the debate.

Greg Clark: I just said that I intend to be constructive and to pursue the approach that we have taken. If the hon. Gentleman will be patient, I will respond shortly to that particular recommendation.
	Let me summarise the principal contents of the Bill where they reflect the advice of one or both of the commissions, before I set out the areas in which we take a different view. One of the central recommendations of the Independent Commission on Banking is that the UK banks should ring-fence
	“those banking activities where continuous provision of service is vital to the economy and to a bank’s customers.”
	That recommendation has attracted widespread support, and the Bill creates the basic architecture of the ring fence by making it an objective of the regulator—the Prudential Regulation Authority and, if necessary, the Financial Conduct Authority—to secure the continuity of core services by preventing ring-fenced bodies from exposing themselves to excessive risks, by protecting them from external risks, and by ensuring that, in the event of failure, core activities can carry on uninterrupted, the so-called resolution objective. The core activities are defined, as recommended by Vickers, as the taking of retail and small and medium-sized enterprise deposits and overdrafts, but they can be added to if required through secondary legislation.
	In response to the parliamentary commission’s recommendations, the Bill is now clear that to be ring-fenced means that the five so-called Haldane principles of separation should be followed, namely that the ring-fenced
	bodies should have separate governances, including boards; remuneration arrangements; treasury and balance sheet management; risk management; and human resource management. As the parliamentary commission has also recommended, directors of banks will be held personally responsible for ensuring that the ring-fence rules are obeyed. The parliamentary commission also made a recommendation that the ring fence should be electrified. That is to say that, if the rules are breached, the banks should be forcibly split.
	While the Bill is before the House, the Government will bring forward amendments to provide a power to require the full separation of a banking group, where, in the opinion of the regulator and the Government, such separation is required to ensure the independence of the ring-fenced bank. As hon. Members know, the parliamentary commission made a further recommendation for a power to trigger separation of the entire system, which I will come to shortly.

Jonathan Edwards: How confident is the Minister that over the coming years the all-powerful financial lobby will not water down the ring fence and return to a business as usual scenario?

Greg Clark: That is a principal source of concern. Sir John Vickers, the author of the report, has given evidence in public that he is confident that the arrangements are robust, but we reflected on one of the recommendations of the parliamentary commission to provide this electrification so that there are consequences for a bank that tries to game the system. That is right and it is a valuable contribution from the commission.

Andrew Tyrie: Sir John Vickers has in evidence to us also endorsed in full our proposals for electrification, part of which the Government are rejecting.

Greg Clark: I will deal with the important recommendation made by my hon. Friend’s commission very shortly.
	For the sake of completeness, let me summarise the Bill’s other main provisions.

Stewart Hosie: The Minister said that electrification would work because the regulator—the PRA or the FCA where a financial institution is not PRA-regulated—will be given the power to ensure core services. Does he see any issues arising if the PRA and the FCA perhaps take a different approach to what they might do to the same institution? Is there a concern about two different regulators looking at different institutions on the same matter?

Greg Clark: The hon. Gentleman makes an important point, which we considered in drafting the Bill. We would expect all of these activities and institutions to be regulated by the PRA. The FCA was included in the Bill as a means of ensuring that if some other activities were to take place in the future—although we do not envisage that happening—it would not be necessary to come back to the House. That is our clear intention.
	Let me summarise what the Bill does include before I go on to talk about what it does not. As proposed by the independent commission, the Bill provides that deposits protected by the Financial Services Compensation Scheme—the deposits of individuals and small businesses up to £85,000—will be preferential debts in insolvency. The Bill provides the regulator with the power to require ring-fenced banks to maintain a buffer of at least 17% of what is referred to as the primary loss absorbing capacity—that is, equity, other non-equity capital instruments, and debt that can be written down or converted into equity in the event that a bank fails. This allows losses to fall on the bank’s wholesale creditors—sophisticated financial investors—rather than on ordinary taxpayers, as was the case with RBS.
	A legitimate question arises as to whether additional loss absorbency requirements should apply, in an international financial centre such as the United Kingdom, to the overseas operations of UK-based global banks. This has been much debated in the House, both before the parliamentary commission and elsewhere. It is obviously right that where the overseas businesses of a UK-based bank could pose a threat to UK financial stability, or to the British taxpayer, that bank should issue loss-absorbing debt against the entirety of its group operations. Equally, where overseas units do not pose such a threat they should be exempt from loss-absorbing debt requirements, not least to avoid creating a false impression that the UK somehow stands behind those overseas businesses.
	The question that has exercised the commission is this: who should decide? The Government have listened to the Financial Services Authority and the parliamentary commission on how that should work. We agree that the requirement should follow the strategy for managing the failure of each group, know as the resolution strategy. Where a UK parent company will provide support to resolve failing overseas operations, the regulator must ensure that the parent company issues loss-absorbing debt against the entire group. However, where a bank’s overseas subsidiaries would be resolved locally by overseas regulators without reliance on the UK parent, the parent company should not be required to issue loss-absorbing debt against those overseas subsidiaries. Crucially, it will not be the bank’s call but the decision of the regulator and the Treasury as to whether group primary loss-absorbing capacity—PLAC—should be held.

Andrew Love: Of course, the UK regulator will have to know whether the third-country regulator will accept responsibility for the subsidiary. How does the Minister intend to ensure that the UK regulator can be reassured that the third-country regulator will accept responsibility for the subsidiary should it get into trouble?

Greg Clark: The hon. Gentleman is absolutely right. That will be one of the requirements—the regulator, and indeed the Treasury, will need to be satisfied by the bank that the overseas regulator has accepted, and credible arrangements are in place, to ensure that no liabilities will fall on the UK taxpayer.

Andrew Tyrie: I apologise for interrupting the Minister a second time. Just to be clear, will it be the regulator or the Treasury that will ultimately decide what constitutes adequate PLAC? A moment ago he referred to the regulator and the Treasury. Which will it be?

Greg Clark: The resolution plans have to be agreed between the regulator and the Treasury, so both will have that responsibility.

Stewart Hosie: Just to get some clarity on the previous point about the relationship with overseas regulators, if both the Treasury and the regulator are required to be convinced of the plan, how will that work in the relationship with, say, the single supervisory mechanism in Europe? Will it, too, not be required to be convinced, or at least will discussions not have to take place, to determine first where liability might lie and then whether the resolution plans are adequate?

Greg Clark: The reason for arranging this through the resolution plans is that they should be agreed in advance and everyone should be clear who will be responsible. It is no good the Treasury or the regulator in this country thinking that an overseas jurisdiction will pick up the bill if they were actually blissfully ignorant of it, so the hon. Gentleman is absolutely right that there has to be that clarity.
	As I promised on 4 February, I have provided Parliament with drafts of the principal statutory instruments so that the House, while scrutinising the Bill in detail, can understand more clearly how the powers that the Bill grants are intended to be used. As a further aid to scrutiny, I will also make available to the House, in advance of consideration in Committee, a so-called Keeling schedule giving a consolidated text of those parts of the Financial Services and Markets Act 2000 that will be amended by the Bill, including the amendments the Bill will make.
	Let me turn to some of the relatively few recommendations of either the Independent Commission on Banking or the parliamentary commission on which the Government have not been persuaded. There are four main areas to consider. The first is the timing of scrutiny, which the hon. Member for Nottingham East (Chris Leslie) mentioned. I hope that hon. Members will accept, from the process I described earlier, that these proposals have already benefitted from an exceptional degree of consideration, both in the amount and, if I may say so, in the august quality of its scrutineers. It will soon be three years since the Vickers commission began its work, and it is less than two years until all the secondary legislation must be enacted if this work is to be completed in this Parliament, as I think we all hope it will be. The Bill is comparatively short—20 clauses— and the time envisaged for its Committee stage is not unreasonable for consideration of all the amendments proposed by the parliamentary commission in its report published today.
	However, I know that the parliamentary commission has other advice to give, and I welcome its commitment to produce its final report by the middle of May. Once we have received the commission’s advice, we will of course want the chance to be able to take it. I therefore give this commitment: subject to the usual channels, I will make sure that this House has enough opportunity to consider and debate whatever further recommendations the commission makes in its final report.

Andrew Love: I thank the right hon. Gentleman for that commitment. Another issue that made life more difficult for the parliamentary commission was the lack of any
	knowledge of the delegated legislation that he has said will go through the House. Will he give some indication as to when that will be published so that although the parliamentary commission might not have that information available to it, the Public Bill Committee may?

Greg Clark: I am grateful for the hon. Gentleman’s point. As I said, I have published some of the principal statutory instruments and more will be available before the Bill goes into Committee. I will make sure that the House has access to the principal measures; as he knows, minor measures will sometimes follow. I repeat that it is absolutely my intention that the Bill should be properly considered and scrutinised by this House. The strength of these arrangements will benefit from their being exhaustively considered and enjoying the full confidence of the House.

Andrew Tyrie: I apologise for interrupting for a third time, but I want to clarify the scrutiny question. The Government intend to get the Bill out of Committee before the date that the Banking Commission had proposed that it should go into Committee. Therefore, this all boils down to how much time we are going to get on Report. Will the Minister now, at the Dispatch Box, give a commitment to two days on Report?

Greg Clark: I cannot do that, but I repeat my commitment that this House will have the opportunity fully to consider the amendments proposed by my hon. Friend’s commission. He has not yet produced his report, so we do not know what he has in mind, but I have been as clear as I can at the Dispatch Box that there is no intent to avoid scrutiny; quite the opposite.

Christopher Leslie: The Minister talks in very emollient tones, because he likes to sound moderate, but this is a series of instances of contempt for the House of Commons’ powers and our ability to scrutinise the Bill. The Government ignore the recommendation of the parliamentary commission, they then try to whisk the thing out of Committee before we have even had a chance to consider the recommendations of the commission, and now, when asked for a mere two days on Report, the Minister will not even give that commitment. The Chancellor is not here, either. In what seriousness do the Government hold this Bill? There is a sense that it is just part of a rubber-stamping exercise for them.

Greg Clark: The hon. Gentleman will discover that through our debates in Committee he will have plenty of opportunity to scrutinise the Bill. When we have the commission’s recommendations, if we think that they need more than a day on Report then I will make the case for that. Whatever happens, I will ensure that this House has the opportunity fully to consider these matters.

Pat McFadden: I am afraid that I want to press the Minister further on the same point. He said that the Government would ensure that there was full consideration in this House of further recommendations from the Parliamentary Commission on Banking Standards, yet the timetabling motion that he will move later says:
	“Proceedings in the Public Bill Committee shall…be brought to a conclusion on Thursday 18 April”.
	That is before the date of the parliamentary commission’s final report. How meaningful will be his commitment to full consideration of those proposals, given that he is rushing the Bill through Committee before the commission, which I remind the House was set up by the Chancellor, has even issued its final report?

Greg Clark: The right hon. Gentleman will find that he is satisfied with the scrutiny that is available. It is a question of chickens and eggs. We have not yet had the recommendations of the commission, on which he serves. When it makes its recommendations, if we think that they require more time then we will certainly make sure that there is plenty of opportunity for the House to scrutinise these matters.

Edward Balls: Will the Minister give way?

Greg Clark: I will give way for the last time.

Edward Balls: I remind the Minister that, around the time of the LIBOR scandal a year ago, a serious proposal by the Opposition for a full, open public inquiry into these issues was rejected by the Chancellor in favour of a parliamentary commission. The commission’s recommendations on process as well as substance and the House of Commons’ scrutiny of its recommendations —which will not even have been made by the time the Committee stage is complete—are being treated in a way that is very much against the spirit of the Chancellor’s announcement last summer, when he rejected a full public inquiry. If the Minister can get hold of the Chancellor before the vote at 10 pm, he should tell him that the Government should reconsider the contemptuous way in which they are treating the House of Commons and the all-party parliamentary commission of both Houses. It is not in line with the spirit of the discussions that the Chancellor had last summer with the chair of the commission, the hon. Member for Chichester (Mr Tyrie).

Greg Clark: The right hon. Gentleman will find that he will be perfectly satisfied with the degree of scrutiny that the recommendations, which have not yet been made, will receive. I have made that commitment and he will see it in time, even if he is not very trusting at this stage. I hope he will change his view.
	One of the parliamentary commission’s policy recommendations was for a general reserve power to split up the entire banking system if it were considered to be appropriate in future. The Chancellor, the chairman of the commission—my hon. Friend the Member for Chichester—and, indeed, the Archbishop of Canterbury had a learned and erudite discussion about the origin of the sword of Damocles metaphor. The Government’s view is that such a power would, in effect, introduce a different policy—one that was considered and rejected by the Independent Commission on Banking, which concluded that full separation would have higher costs for a gain
	“that might not even be positive”—
	without anything like the three-year period of scrutiny and analysis that this policy has enjoyed.
	The proposal would, in effect, legislate for two policies at the same time—ring fencing and full separation. We must legislate for the policy that the Vickers commission proposed. If a future Government were to consider that ring fencing was no longer the right solution—which they would be perfectly entitled to do—they should conduct a full analysis of the case for alternative reforms and, in the light of that analysis, introduce new legislation to Parliament.
	In addition, the parliamentary commission has proposed that the exercise of the reverse power by the Prudential Regulation Authority should include safeguards, including a Treasury veto, to ensure that the regulator behaves in a non-discriminatory way. The Government agree that there should be such a veto and will table an amendment to provide for a firm-specific power to require separation while the Bill is before the House. In addition, a further safeguard is available for any bank that believes it has been treated unfairly—namely, recourse to the courts.
	One very important point that both the Vickers commission and the parliamentary commission agreed is that, in addition to the enhanced capital requirements on ring-fenced banks, there should be a minimum leverage ratio and that it should apply to unweighted assets of 4.06%, rather than the Basel III standard of 3%.
	Let me be clear: this Government support the introduction of a minimum leverage ratio. It provides a simpler measure than risk-weighted assets, the calculation of which can be complex and disputed. Furthermore, it has been established empirically that a rise in the leverage ratio often preceded credit booms in this country and overseas.
	The question remaining is about the precise level of the leverage ratio. I referred earlier to the British dilemma of how to maintain an internationally competitive financial sector without imposing risks on domestic taxpayers. This is a case in which that dilemma is, to be frank, most acute. When it comes to capital requirements, international agreements have already established that different countries will have different requirements. The European Union capital requirements directive, CRD4, provides for member states to have discretion to go beyond agreed capital requirements.
	In the case of the leverage ratio, the 3% Basel III recommendation was for the requirement to be binding only from 2018, and it is not clear yet whether there will be the flexibility in European law to increase it as Vickers and the parliamentary commission recommend. The Vickers commission did not recommend that the higher leverage ratio should apply before 2019, in order, for reasons that I think we all understand, to minimise the impact on lending in the short term while the economy is still recovering.
	Furthermore, during our repeated consultations, concerns have been raised by institutions such as building societies that they could be caught by a 4% leverage ratio despite having a relatively low-risk portfolio of assets, thereby restricting lending to home owners. Moreover, it would lead to assets in Spanish property, for example, being viewed as equal to US Government bonds for the purposes of the calculation. Our view, therefore, is that at this time we should follow the international approach and press for countries to have a power to set a higher ratio from 2018, following a review in 2017.
	Having said that, in the interests of transparency, we agree with the recommendation of the Financial Policy Committee that banks should disclose their leverage ratios from 2013. I confirm that they will do so from this year.

John Mann: Does the Minister perceive there to be a problem for very small building societies, because they are more disadvantaged than large institutions and could be swallowed up, thereby reducing competition in the market rather than increasing it?

Greg Clark: I have taken to heart the need to allow into the market smaller players, whether they be building societies or banks. I will say something about that shortly which I hope will satisfy the hon. Gentleman.

Pat McFadden: I suggest to the Minister that he has just ducked the British dilemma that he set out at the beginning of his speech by saying on the one hand that we have a huge financial services sector, but on the other hand that we are going to go at the speed of the slowest ship out of Basel on the capital and leverage rules. Is not the proper response to having a huge financial services sector relative to our economy to ensure that we have adequate rules to protect the UK taxpayer, rather than always going for the lowest common denominator internationally on such standards?

Greg Clark: I think that the right hon. Gentleman would concede that what Vickers recommended will advantage us and protect the British taxpayer in a number of respects, including through ring-fencing and higher capital requirements. We are already doing those things. He will know that Vickers did not recommend an early increase in the leverage ratio. I have been candid with the House that we would like to see one. However, in line with what Vickers advised and given the discussions that are taking place in other jurisdictions, we think that it is right to have the consideration in 2017, with a view to introducing the higher leverage ratio later.

Andrew Love: The Minister said earlier that capital requirements and the leverage ratio were protections for the UK banking sector. However, capital is based on risk-weighted assets, which, as he has accepted, are controversial and, to many people’s minds, do not provide the level of protection that is required. It therefore becomes acutely important that the leverage ratio provides that protection. As has been said, given the size of the UK banking industry, it is critical to prioritise safety and soundness. Those things will be delivered by a higher leverage ratio.

Greg Clark: I do not disagree with the hon. Gentleman’s analysis. A higher leverage ratio is important. However, we have reflected the view of the Vickers commission that a higher leverage ratio is not necessarily required immediately. It is our intention to bring it in following the review in 2017. That is a reasonable time frame. I repeat that it is our intention that there should be a backstop ratio.
	The final major difference between the Bill and what was recommended by the parliamentary commission is that it does not include proposals on how creditors,
	rather than taxpayers, will be expected to bear the costs in the event of a bank failure. We are working with other European countries to develop a credible and effective bail-in tool as part of the European recovery and resolution directive, reflecting the recommendations of the global Financial Stability Board.
	The Irish presidency of the EU has set out plans to make rapid progress towards concluding the recovery and resolution directive. The RRD is due to come into force in 2015 and the bail-in tool by 2018. Given that progress, we have not included clauses on the matter in the Bill, but if agreement cannot be reached, which we do not expect to happen, we will consider tabling amendments later in the Bill’s passage to allow the UK to act alone.

Andrea Leadsom: Does my right hon. Friend agree with me and Andy Haldane that bank account number portability could make a positive contribution to the prospects of easy resolution in the event of a future bank failure?

Greg Clark: My hon. Friend is a passionate advocate of that, and I think that what I will say about it will please her. I hope that she will be able to contribute to the debates on it in the weeks ahead.
	The Government intend to go further on the matter of competition than was suggested in the reports of the two commissions. I strongly believe that the concentrated nature of the UK banking industry is unacceptable. I want to see far greater possibility, and indeed reality, of entry into the market by new banks and building societies. One of the barriers to that has been access to the UK payments system. Potential challengers have to win the permission of incumbents to be able to use the system. The Government will therefore shortly consult on a proposal to make access to the payments system regulated, to ensure that it is available on fair, reasonable and non-discriminatory terms. Subject to the findings of the consultation, the Government will consider tabling amendments to the Bill to give the regulator the necessary powers. I think that would address my hon. Friend’s ambitions.

John Mann: I welcome the Minister’s comments. Will he also table an amendment to recreate the Halifax building society out of the state-owned Lloyds-TSB bank? That would immediately create a major competitor on the high street that would be hugely popular, as it was before it was bought out.

Greg Clark: We want to see greater competition and more entrants. The hon. Gentleman will know that in the case of the banks in which we were in the unfortunate position of having to take a shareholding, the arrangements that govern that shareholding require us to operate at arm’s length of the interests of other shareholders. No doubt he will be able to make his points throughout the passage of the Bill.

John Mann: This is a Bill, and it can become an Act, so the Minister could table a Government amendment to do precisely what I said. Why is he not taking the opportunity to recreate the Halifax building society, which hundreds of thousands—perhaps millions—of consumers across the country would greatly welcome?

Greg Clark: All I would say is that that is not one of the Government’s proposals. We operate at arm’s length, but if the hon. Gentleman is a member of the Bill Committee he will be able to table such an amendment, and I am sure it will be vigorously debated.
	I hope that in years to come the Bill will be viewed as a landmark piece of legislation in the history of our economy. I readily concede that a Bill entitled the Financial Services (Banking Reform) Bill does not set the heart racing, but important legislation can have a profound effect on our economy and come to represent a particular approach. That is shown by our familiarity even today with an American Act, the Glass-Steagall Act, the common name for the US Banking Act of 1933. I am modest and realistic enough to hold out no hope or expectation that this Bill will be referred to in 80 years’ time as the Clark-Javid Act, but if the House’s scrutiny is as thorough and constructive as I hope, the names of Vickers and, dare I say, Tyrie might find a place in the history books. The hon. Member for Nottingham East and even myself might get a footnote.
	The real test of the Bill is for it to establish once and for all the conditions in which the British banking system can be a global success story for decades to come while contributing to, not detracting from, the prosperity of the British people. I commend the Bill to the House.

Christopher Leslie: I am sorry that the Chancellor has not been able to join us for the debate. The Bill may be called the Clark-Javid Act, but it will certainly not be called the Osborne Act given his disappearance.
	As the Financial Secretary said, the global financial crisis has cast a long shadow. Our recovery to pre-crisis levels of economic output has still not been achieved because of the drag anchor of the Chancellor’s austerity programme. The high-risk, high-reward culture of worldwide banking systems required a taxpayer bail-out; profits were retained privately in the good times, but losses fell on the shoulders of the public when things turned bad. We cannot allow a repetition of those risks to the taxpayer in future, which is why banks must be reformed in the UK, across the EU and across the globe.
	The Bill has its roots in the 2009 G20 Pittsburgh summit when world leaders decided to insist on tougher loss-absorbing capital rules for banks. Britain’s financial services sector is larger than most, and with the greatest financial centre on the planet in the City of London we must take additional steps to guard against the risk of future collapse. The Financial Services Act 2012 sought to address regulatory shortcomings, but the jury is out on whether the Bank of England will be inherently stronger than the Financial Services Authority.
	The advent of the FSA in 1998 was a step forward from the dark ages of self-regulation, but that regulatory framework was not capable of policing the extreme risks and dangers of a rapidly expanding global banking sector, interdependent from country to country. We agree with the need to introduce prudential regulation and greater systemic oversight, but that theory has not yet been translated into reality. Although there were regulatory shortcomings, we should be in no doubt that primary culpability rests with the banks, which should not be allowed to get away without reform.
	The Vickers Banking Commission concluded that structural firewalls are needed to supplement capital safety buffers, which is undoubtedly true. With this Bill some of the legislative underpinnings for those firewalls will gradually take shape, and to the extent that it enables the ring-fencing of retail from investment banking, we welcome that. However, the Bill merely provides the scaffolding for the basic building blocks that will come at a later date, largely in secondary legislation by Treasury order. It focuses only on structural scaffolding, not on wholesale reform of the standard and culture of the banking sector—something we hope that the cross-party Parliamentary Commission on Banking Standards will help focus on to help fortify the Bill in due course. As the Banking Commission points out, it is perhaps not the beginning of the end of banking reform, but the end of the beginning.
	The timing and process for consideration of the Bill, and the programme motion before the House, propose a ridiculously compressed Commons scrutiny process and for the Bill to be out of Committee by 18 April. As I said earlier, that shows total disregard for the parliamentary process and flies in the face of the Banking Commission’s careful recommendations. The Bill is already a cursory framework because it is largely a string of enabling powers for the Treasury to arrange for ring-fencing through secondary legislation. The Government established the Parliamentary Commission on Banking Standards to ensure that recommendations could be added to the Bill. So far, however, we have had only part 1 of that commission’s points about structural questions.
	The Government now expect the Commons to consider this partial Bill in Committee without having the final report on standards and culture from the parliamentary commission. That is treating the Commons as though this is merely a tick-box exercise and a part of the process that does not matter, and there is no need to scrutinise the final proposals. Dropping in late additions to the Bill on Report or—more likely—during consideration in the Lords, is not an appropriate way to legislate. As I said, the parliamentary commission recommended a three-month gap between publication of the Bill and commencement of the Committee stage, but the Government rejected that idea.

Pat McFadden: My hon. Friend said, I think, that the timetable was inappropriate. Does he agree that it may also be unwise, given that if the amendments are moved in the other place, the first three speakers in that debate are likely to be the former Conservative Chancellor, the former Chair of the Treasury Committee, and the Archbishop of Canterbury?

Christopher Leslie: Recently I have been looking at a number of Thatcher quotes, given that the Prime Minister mentioned TINA—there is no alternative—which hon. Members will remember. Another famous quote from Lady Thatcher was, “Always leave yourself a way out”, and I wonder whether the emollient approach taken by the Financial Secretary is because he realises that when there is inadequate scrutiny in this House, the questions go to the other place and it is likely that the Government will have to back down on some of these matters. Perhaps he is listening to the advice of Baroness Thatcher on some of these issues.
	It is not adequate to expect, as the Minister suggested, that we will be able to scrutinise the Bill sufficiently on the Floor of the House on Report. As he knows, with the knives that come into effect during various considerations on Report, one often finds that amendments are put without a full debate. It is a different process from the Commons Committee stage. The programme motion should reflect the right of the Commons to scrutinise the full version of the Bill, and that is not the version we have before the House today. If the Government were serious about this issue, the Chancellor would be here. Clearly, our downgraded Chancellor has downgraded the banking reform Bill.

Andrea Leadsom: The hon. Gentleman has mentioned a few times that the Chancellor is not here. Does he regret that his former boss, the ex-Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), is not here to make a sincere apology to the House for his role in the mess that put us in the place we are in today?

Christopher Leslie: I presume that is almost an apology for the anti-regulatory approaches historically taken by the Conservative party. I do not seem to recall Conservative Members ever saying, “Please, more regulation! Let us have it now. This is insufficient; we must regulate far more firmly.” It does not seem that that was ever part of the lexicon in the approach taken by Conservative Members.

Alun Cairns: In the hon. Gentleman’s preamble, he talked about the shifting of powers to the FSA, and I was somewhat taken aback that he called it a step forward. Would he like to repeat the fact that he supported that as a step forward, or would he like to apologise for that move?

Christopher Leslie: The Conservative party, I think, voted in favour of the creation of the FSA. I think even the Conservative party recognised at the time that moving from self-regulation—[Interruption.] I apologise if I have got that wrong. It may well have been that it opposed the legislation because it introduced statutory regulation. The state of affairs that existed before was self-regulation—the regulatory environment was not there.

Peter Tapsell: In the 1997 debate, I strongly opposed the establishment of the FSA, with its tripartite regulatory structure. I predicted it would be an absolute disaster, and it has been.

Christopher Leslie: Without in any way casting aspersions on the motives of the Father of the House in voting against setting up the FSA, I wonder whether he voted against it because its regulatory stance was too weak, or whether he was anxious at the time that its regulatory approach would be overbearing. I suspect that Conservative Members know, in their heart of hearts. Were they really opposing the creation of the FSA because they thought that the strength of the regulatory arrangement would not be sufficient? Is that what they are really saying?

Peter Tapsell: I opposed it, if I remember correctly, because I said that if the Treasury, the Bank of England and the FSA were all involved in regulation, they would
	all be quarrelling with each other and passing responsibility on to the other two when things went wrong. Those, I think, were almost the exact words I used, and that is exactly what happened.

Christopher Leslie: Hindsight is a wonderful thing. All I say to the Father of the House is that we are now in a situation where we have a new Financial Conduct Authority, the Prudential Regulation Authority, the Financial Policy Committee and the Monetary Policy Committee. The Bank of England is of course still involved, and the Chancellor of the Exchequer will still have a number of powers. He may not have realised it, but the Government’s changes have not exactly simplified the regulatory environment. I digress. That was the Financial Services Act 2012, but we are addressing the Financial Services (Banking Reform) Bill in 2013.

Greg Clark: When I took over my role, I read the Hansard report of the November 1997 debate. I commend it to the hon. Gentleman because it makes it absolutely clear that we opposed the creation of the FSA in the form proposed because we predicted it would be a mess. The then shadow Chancellor, my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley), said:
	“The process of setting up the FSA may cause regulators to take their eye off the ball, while spivs and crooks have a field day.”—[Official Report, 11 November 1997; Vol. 300, c. 732.]
	That is exactly what happened.

Christopher Leslie: Conservatives have a tendency to try and rewrite history, but this really takes the biscuit. If the Minister is seriously saying that he would have preferred to have stayed with a non-statutory regulatory arrangement, which was the option available, he should stand up and admit it. He often asks where the apologies are, but we have accepted that we should have adopted a more prudential approach to regulation than the arrangements in the Financial Services and Markets Act 2000. It is now equally important, however, that Conservative Members recognise that regulation is a good thing, that we need regulation of the financial services sector and that they were wrong to prefer a self-regulatory, non-statutory environment. Until they do that, they will never really confront the demons that still exist within the Conservative party’s philosophy.

Mark Reckless: Surely, the argument is not about whether regulation is good or bad, but that the tripartite regulation was completely incoherent and led to a mess in the banking sector and the consequent recession that we are all paying for now.

Christopher Leslie: I do not know whether the hon. Gentleman is telling the full story of what he truly believes about regulation. To listen to Conservative Members today one would think they were all keen market regulators. Perhaps the Conservative party has transformed—the Cameronian vision we have all been waiting for—but, as I understand it, it still regrets the regulatory encroachment on to the market in these matters.

Andrea Leadsom: Does the hon. Gentleman recall that back in 1995, when Barings went bust, there was not a run on a bank? I remember playing a very small part helping Eddie George, the then Governor, to call round international banks urging them not to allow a
	run on the banks in the following weeks. The reason was that he understood that he was entirely accountable for ensuring the integrity of the banking system. Is that not the point? When Labour came into power and created the tripartite system, it simply removed accountability from any one body. We are trying to return it to the Bank of England.

Christopher Leslie: We will see what happens under the new Financial Conduct Authority, the Prudential Regulation Authority, the Bank of the England and the Chancellor. It is important that Conservative Members realise that self-regulation failed and that not having that statutory arrangement was no great thing. Eddie George was the Governor who said, “Let’s just trust the chaps at the desks to deal with these issues.” That was how banking reform was regarded during their tenure in office. But this is turning into a history lesson.

Stewart Hosie: rose—

Christopher Leslie: Speaking of history.

Stewart Hosie: Ten minutes ago, before the hon. Gentleman got dragged into a debate about how rubbish the tripartite system was—and it was—he was making a good point about the lack of time for scrutiny of the Bill. Not least, issues such as the one referred to some time ago—capital requirements for small building societies—took some time to emerge. Will he perhaps get away from the history of how rubbish the tripartite system was and continue to make the case for more time for proper scrutiny, so that those in the industry can tell us what they think of the final shape of the Bill?

Christopher Leslie: For once, I am grateful to the hon. Gentleman for wanting to focus on the issues; it is important that we have enough time to look at the detail. It is also important to commend the work of the banking standards commission, which has done a phenomenal job so far. I will find today’s report of great use in the short Committee stage, because at least it has taken the rather helpful step of drafting suggested amendments that no doubt the Minister, I and others will be discussing in due course.
	The banks have not changed sufficiently. The LIBOR scandal shifted the agenda away from the discussion about excessive risk taking in the financial services sector so that we are now talking almost about anti-corruption measures that need to be put in place. We have had the mis-selling of personal protection insurance and the fleecing of business customers with mis-sold hedging interest rate swap products, while the high-reward bonus season continues to roll on and on, with £600 million of bonuses at RBS sanctioned by the Government, despite a £5 billion loss, to take just one example, so why are they dragging their feet on reform?

Alison McGovern: Conservative Members point to times in history when things changed in banking. While my hon. Friend is talking about culture, is it not important to listen to those who were there at the time, such as the former Chancellor, Lord Lawson? He said of financial deregulation:
	“When the Thatcher Government first took office in 1979 it inherited an economy beset by all manner of government controls…We judge these…regulations to be amongst the causes of Britain’s economic weakness and we wished to be rid of them.”
	Does this story not go back much further? If we want to look at points in history, we might do well to look at the big bang, which changed the culture.

Christopher Leslie: My hon. Friend is entirely right. Ducks go quack, cows go moo and Conservatives hate regulation of the market. It is part of their ingrained DNA.

Stephen Barclay: Will the hon. Gentleman give way?

Christopher Leslie: I will make a bit of progress and give way in a minute.
	There is not enough in the proposed legislation on the safety of the banking system, not enough to rebuild consumer confidence, not enough to reform the high-risk banking culture and not enough to support growth and create a banking system that serves the needs of our economy. Too often, Ministers sound as though they are acting like shop stewards for banking executives desperate to retain bonuses that are many multiples of their salaries. Instead, Ministers should roll up their sleeves and put the taxpayer, the consumer and the UK economy first.
	I want to address some of the issues the Minister raised about the detail of the Bill. First, on banking safety and protections for the taxpayer, Labour believes that a reserve power for full separation is needed, not just the firm-by-firm approach that the Government have conceded. Stopping short on backstop powers will reduce the chances that ring-fencing will succeed. Ministers are ignoring the commission’s conclusions, claiming that it would be wrong to give the regulators full separation powers, but the commission is scathing in its report today, saying:
	“The Government has erected a straw man which it has then successfully demolished, because we made no such recommendation”
	in the first place.
	It is clear that the commission wants a full separation power only after a full review and decision by Government and Parliament—perhaps it was being inadvertently misrepresented by the Treasury—so it would be far more sensible to legislate now, not just if one or two individual banks misbehave, but in case ring-fencing as a whole fails across the sector. Indeed, we see cross-sector failings, as LIBOR illustrates, so it is not enough to have a half-done backstop. Stopping short will deliver only half the backstop measures that we need and will have corporate lawyers across the City rubbing their hands with glee at the prospect of litigation against regulators who might want to intervene on a case-by-case basis. However, given the possible views of the other place, I suspect that the Government will eventually be forced to change their mind.
	Let me turn to leverage and the risk-weighting of assets, which has been introduced as an antidote by regulators to the high-risk, high-reward culture that was pervasive in banks before the crisis. However, the risk-weighting process has been partial and, in some cases, self-defining by the banks, and in the EU the zero risk-weighting attributed to some palpably risky sovereign debts has brought the system into some disrepute. The
	Basel committee published new evidence in January highlighting the major variants between jurisdictions and banks on this issue. Regulators and the Bank of England need to get a grip of this, but as a counter-balance we also need protections against the over-extended vulnerability of bank balance sheets. That is why the leverage ratio powers need to be clearly set out in the Bill and phased in ahead of the European Union plans for the end of this decade, which is one of the main recommendations and conclusions of the Vickers report.

Andrew Love: Vickers was absolutely clear in his evidence to the commission about the need for a higher leverage ratio, as were the current Governor of the Bank of England and the forthcoming Governor. With such evidence presented to the commission, we wonder why the Government simply refuse to listen.

Christopher Leslie: My hon. Friend is spot on. A bank’s leverage is the ratio of its assets to its equity capital. Its equity is equal to the value of its assets minus the value of its liabilities. A higher leverage ratio magnifies returns because any growth in the assets will be proportionally greater if equity is thin. The corollary, however, is that any losses are also magnified if leverage is greater. Such a bank’s equity can be wiped out by a smaller shock than would wipe out the equity of a less leveraged institution.
	Vickers recommended a 25:1 leverage ratio for systemically important banks—in other words, 4% of equity capital—but the Chancellor has dismissed that proposal. The parliamentary commission says that it is “not convinced” by the Government’s decision to reject Vickers’ recommendation to limit leverage in that way, and that it
	“considers it essential that the ring-fence should be supported by a higher leverage ratio, and would expect the leverage ratio to be set substantially higher than the 3% minimum required under Basel III.”

Jesse Norman: Will the hon. Gentleman explain why the average leverage ratio for the banking system, which had been 20 times for the 40 years before 2000, went up to 50 times in the seven years between 2000 and 2007, according to the Independent Commission on Banking? Might that have had something to do with the present shadow Chancellor being the Minister for the City at the time?

Christopher Leslie: No. With hindsight it is clear that we need a tough leverage ratio, and I think the hon. Gentleman’s question implies that he accepts that leverage is an important part of the regulatory toolkit. That is why it is wrong that the Bill ignores the recommendations of Vickers, in particular, but I am afraid that the Chancellor seems to have dismissed the recommendations of not only Vickers but the parliamentary commission on this issue. It is not good enough that the Government are leaving this matter out of the Bill, perhaps assuming that the European Union will somehow address it in the next eight or nine years.
	Even the incoming Governor of the Bank of England, Mark Carney, pointed to the value of a higher leverage ratio as a backstop for a risk-based capital regime when he gave evidence to the Treasury Select Committee. There are ways of overcoming the impact of such a
	measure on a minority of non-plc institutions—I know that some of the bigger building societies, in particular, have expressed their concerns about a crude leverage ratio approach—but that is not a reason not to put a safeguard in place. At the very least, the Government ought to accept the parliamentary commission’s proposal for an annual assessment to be carried out by the Bank of England of the progress of the work to improve risk weightings and the work towards the leverage ratio.

Jesse Norman: Let me put the question to the hon. Gentleman in another way. Does he regard it as slightly ironic that he is now pushing for a leverage ratio that is roughly half the ratio that the Labour Government allowed to occur five years ago?

Christopher Leslie: We have to learn the lessons of that global financial crisis, one of which is that leverage has come to the fore as a way of illustrating the over-extended nature of the banking system. I am glad that consensus is breaking out across the Chamber on this point. As the hon. Gentleman knows, he and I have almost been in concert in voting on a variety of amendments, some of which have been inspired by his very own articles. I therefore look forward to him joining us in the Division Lobby—if it comes to that—on the question of the leverage ratio.

John Mann: Before too much consensus breaks out, may I ask my hon. Friend to say a little more about how he envisages the problem of small building societies being addressed? They are saying unambiguously—although privately, of course, for commercial reasons—that their future is imperilled. Is a one-size-fits-all approach the right one? Is that the approach that my hon. Friend would take if he were in power?

Christopher Leslie: Of course there are ways of ensuring that the building society sector can be accommodated in the leverage ratio framework. Building societies have a totally different equity structure, as my hon. Friend knows; they do not have the same equity as a plc structure. There are therefore important differences in that sector. In my view, however, it is important that all institutions, large and small, should be subject to safety requirements regarding capital loss absorbency and protection against over-extension in certain risk areas. There are ways and means of dealing with that, but I am annoyed that the Government have not seen fit to put any provisions on the leverage ratio in the Bill.

Neil Carmichael: Does that attitude not call into question the future of the Co-operative bank? What would the shadow Minister say about that?

Christopher Leslie: I do not want any of our banks to be in a position of over-extending themselves, putting at risk either their customers or the taxpayer. It is very simple. We need to listen to the carefully thought through advice of the banking standards commission, the Vickers report and others, including the incoming Governor of the Bank of England, on these particular issues. The Government may call it the British dilemma, but it is astonishing that they always seem to be asking the European Union to come to their rescue at some point
	with some reform to deal with bail-in or whatever other problems happen to be around later on down the track. That is not adequate.
	Let me deal with the issue of derivatives inside the ring fence, as I know that the parliamentary commission has been concerned about it. The Vickers report said that derivatives trading should not be allowed—full stop. The parliamentary commission recognised, however, that there were services on the margins where some simple derivative products might be permitted, but it added that
	“allowing ring-fenced banks to sell derivatives other than as an agent creates additional prudential and conduct risks.”
	I agree with the commission on that issue. We need clearer protections to prevent abuses within the ring-fenced retail banks where derivatives are sold. That was illustrated, of course, by the mis-selling of some interest rate hedging products to small and medium-sized enterprises. The danger is one of information asymmetry between customer and vendor and the fact that the trade became exceptionally lucrative for the banks. We have to move away from this era of the exploitation of the customer’s lack of knowledge, and the commission was clear about that in the three tests it set.
	We have seen one of the drafts of the secondary orders, subsequent to the commission’s recommendations. It is therefore worth comparing that order with the tests that the commission has set. The commission said that there should be adequate safeguards against mis-selling, but as far as I can see, the draft order does not go into any detail about how the Prudential Regulation Authority or the Financial Conduct Authority will enforce anything new. The commission said that there should be a clear definition of simple derivatives, which will be allowed, versus complex derivatives, which will be disallowed, but the draft order seems to define simple derivatives quite widely—in other words, as instruments designed to tackle interest rate risk, exchange rate risk, default risk, liquidity risk or for dealing in assets included in the liquid assets buffer. It would be easier if the Minister set out what would not be allowed rather than what would be allowed in the ring fence.
	The third test relates to limits on the proportion of a bank’s balance sheet. The commission thought that was necessary, but the draft order so far leaves out what that percentage should be. There is a space left for a figure before the percentage sign, so perhaps the Minister can give us a sense of what that proportion of the bank’s balance sheet should be. That was one of the commission’s tests, as I said, so we need to secure assurances from the Minister about the Government’s intentions. As Martin Taylor said in his evidence to the commission:
	“I can’t see the point of having a fence round the chicken coop, electrifying it to keep the foxes out, and then inviting a family of tame foxes to live inside it.”
	That sums up the problem quite neatly. I have already alluded to the bail-in powers. Again, it is disappointing that the Government are relying on future European directives as the means to achieve bail-in rather than building it into the Bill before us. I do not think that the frequent excuse of “We’re waiting for the European Union” will do any longer.
	We need also to focus on some of the other issues that should be in the Bill today, particularly rebuilding consumer choice, financial inclusion and a diverse market. The
	Bill is silent on all those areas. There is nothing about challenger or new entrant banks; nothing to ensure a universal obligation on banks for basic bank account services. There is also pussyfooting around on switching of bank accounts, about which I know some Government Members are concerned. There is nothing on mutuality, despite the pledge in the coalition agreement to
	“foster diversity in financial services, promote mutuals and create a more competitive banking industry”;
	and nothing about a fiduciary duty of care for clients and customers. We will table amendments to ensure that high street lenders offer a basic bank account, which is particularly necessary because of the onset of the universal credit. We want a report within six months addressing obstacles to new-entrant challenger banks and current account provision. We also want Parliament to have an opportunity, soon after Royal Assent, to examine the adequacy of customer switching arrangements, and we want the publication of bank data on “lending deserts”, the postcode areas where—as we are finding in our constituencies—some small and medium-sized enterprises and customers find it difficult to gain access to credit. Other tests need to be included in the Bill to fulfil the coalition’s mutuality pledge. We also want a duty to be imposed on directors of ring-fenced banks to operate prudently and to safeguard deposits, and we want them to have a fiduciary duty of care to customers throughout the financial services.

Andrew Bridgen: The hon. Gentleman has rightly described consumer choice as the main driver of any market. Does he believe that encouraging Lloyds Banking Group to buy HBOS, or intimidating it into doing so, increased or decreased consumer choice in this country?

Christopher Leslie: The hon. Gentleman may not have noticed it, but there was a bit of a financial storm going on in the financial services sector at the time. He may think that his constituents who had deposits in Lloyds would have been better off had the bank not been saved in the way that it was, but I do not think that they would have enjoyed the experience of turning up at the cash machines and not being able to get their money out. I think that rescuing the banks was a necessary step at the time, but now we must learn from that crisis, which occurred not just in the United Kingdom but in the United States and throughout the developed world. If Government Members think that they can get away with rewriting history, and that the former Prime Minister uniquely got on a plane, caused the collapse of Lehman Brothers, and then went off to Greece and Spain, they must be living on a different planet.

Andrew Bridgen: Does the hon. Gentleman not remember that Lloyds Banking Group needed to be bailed out only because it was intimidated into taking over HBOS by the last Government?

Christopher Leslie: I disagree. I think that there was a high-risk, high-return culture in the banking sector—we saw it in the United States, and we saw it here—which Government Members fuelled through their deregulatory philosophical approach.

Alun Cairns: Will the hon. Gentleman give way?

Christopher Leslie: Not at the moment.
	We need improvements in the standards and the culture of our banking sector, and Ministers ought to have allowed enough time for them to be discussed in Committee. We will table amendments providing for the establishment of a professional standards body to enhance the approved-persons process. There needs to be a clearer complaints procedure, and a stronger facility for failing banks to be struck off. We need clarity in regard to the professional qualifications and competences that are expected, especially in the wholesale sector, and a code of conduct that is monitored and enforced effectively and applies not just to significant influences in the banking sector but to all bank employees. We need safeguards to secure the independence of board directors overseeing ring-fenced banking activities. The commission has very reasonably recommended a “sibling” rather than a “parent-child” corporate ownership structure.

Jesse Norman: I am trying to follow the hon. Gentleman’s argument, but it has become fatuous. The fact is that the banking system had a leverage ratio of 20 times in 2000, as it had had on 40 previous occasions. Deregulation under the last Government but one had nothing to do with this financial crisis, which was caused by an increase in leverage—an explosion of leverage—under the Labour Government between 2000 and 2007. It is in the Vickers report.

Christopher Leslie: If the hon. Gentleman’s analysis is correct, he will no doubt join us in the Division Lobby to institute the recommendations on leverage from the parliamentary commission. Is that his intention? Will he join us in supporting our amendments? I will give way to him if he wishes to answer that question, but I do not think he does. That is a shame, because I know that he feels strongly about these matters, but I can detect the gagging influence of the Treasury Whip as he texts the message “Be careful: Jesse Norman is on his feet again.” Forgive me, Mr Deputy Speaker, I meant to say the hon. Gentleman. The alert has gone out that rebellion is in the air.
	We need more protections to deal with standards and culture, and we need to make sure that whistleblowers in the banking sector are given protection. We also need to set up a financial crime unit within the Serious Fraud Office, using some of the resources that are flowing from the fines. We probably also need to deal with the statute of limitations issue, going beyond the three years to give the regulators additional powers.

Stephen Barclay: rose—

Christopher Leslie: I think I ought to make some progress, and I want to talk about the need for the banking system also to enhance our economic prospects, support enterprise and growth, and maintain the supply of credit to the economy. Those are some of the issues that our constituents are concerned about for the future. Nothing in the Bill looks forward at the challenges facing business or the economy more broadly. So we want to see urgent action—ideally in the Budget, but if not in this Bill—that improves the operation of the funding for lending scheme to ensure that lending to small business is prioritised. We called for that last summer when the scheme began, but since then net
	lending to business has fallen further and further still. It is very important that we take this moment to improve and adapt the funding for lending scheme in this way. We must recognise that we have had the failure of Project Merlin and we have had credit easing, which was given eight months to do the job. So funding for lending is the third scheme that the Chancellor has tried and we have to make sure that it is changed in a way that makes these things work.
	Even if the Government eventually create a fully-formed Bill, we need regular parliamentary oversight of how ring-fencing and the new structures are working. As the Parliamentary Commission on Banking Standards says today:
	“The Government’s proposal for the periodic review to be conducted by the regulator is wholly inadequate.”
	We also need to have more than the one-and-a-half-hour, rubber-stamping Committees to scrutinise the detailed secondary legislation, which is why we advocate a super-affirmative order-making process to give time for the Treasury Committee and others to examine the technical detail of the changes in respect of the clauses and the orders that flow from them.
	We want a Bill that makes banking safe and protects the taxpayer, but this one falls short in several areas. We want a Bill that improves banking standards, enhancing probity and conduct, and reforming the culture of banking, but this Bill contains none of those changes yet. We want a Bill that helps to rebuild consumer trust and choice, supporting more competition, new entrants, mutuality and consumer switching. We want a Bill that creates a banking system that supports jobs and growth, and maintains the supply of credit to the economy. The Opposition will not oppose the Bill on Second Reading today, because reforms are clearly needed, but too many important policy changes are still conspicuous by their absence. After such a big global crisis, and so many scandals and inquiries, the Government have no excuses and they need rapidly to populate this shell of a Bill with some real substance.

Several hon. Members: rose—

Lindsay Hoyle: Order. I remind Members that there is a 12-minute limit.

Andrew Tyrie: Last July, immediately after its creation, the Parliamentary Commission on Banking Standards was asked by the House to undertake pre-legislative scrutiny of this Bill. In other words, in addition to fulfilling its terms of reference it was asked to examine the Government’s proposals for the implementation of large parts of the Vickers review. We have worked very hard to do what the House has asked of us, and I particularly wish to thank all my colleagues on the commission; all the commoners are in the Chamber today and although I cannot see any of the five peers up in the Gallery, their work has been not inconsiderable—as has been pointed out, they are a formidable bunch. I also wish to thank the Treasury Committee, which has continued to participate in aspects of this debate in our inquiries and the vast majority of whose members—nine, I believe—are also in the Chamber.
	The first report from the Parliamentary Commission on Banking Standards, published in December, welcomed the Government’s decision to implement the Vickers ring fence, but we also argued that the ring fence had to be made much more robust if it was to have a good chance of enduring. We suggested that the level of innovation in financial services, the lobbying power of the banks, and the short memories of regulators and politicians all pointed to the need to reinforce the ring fence. That is why the commission recommended that the ring fence be supported by a reserve power, subject to final Treasury approval, to enable the regulator to impose full separation on a bank that attempted to game the ring fence. The Government have now accepted the merits of that recommendation and the Bill will be amended to provide for the reserve power, which is very welcome news.
	In their response to our report, however, the Government did not accept a number of other proposals, so we produced a second report. It was published today and it seeks to do three simple things. First, for the convenience of the House, especially those Members who will serve on the Committee, it provides draft amendments to support all our proposals that might need statutory backing. As far as I know, that is an innovation for a Select Committee or Joint Committee and I hope that it will be of some use and perhaps set a precedent for how such Committees operate. The amendments have been prepared with the help of a former senior parliamentary counsel.
	Secondly, an annex juxtaposes our recommendations against the Government’s response to enable the House to see clearly what has been accepted and what has been rejected.
	Thirdly, the report examines the arguments made by the Government for rejecting a number of our recommendations. We were able do that on the basis of further evidence gathered from, among others, Sir John Vickers, the Governor of the Bank of England, the deputy governors and the chief executives and chairmen of most of the major banks. We have concluded that much more work is needed to improve the Bill and I shall linger briefly on only two areas. Much of what needs to be said is in the report and I hope that colleagues will find time to read it.
	The first area is leverage. The parliamentary commission has not heard a convincing argument for blocking, as the Government seem determined to, the Financial Policy Committee of the Bank of England from setting the leverage ratio. We have concluded that the ratio is likely to be too low—that is, that banks are likely to remain overleveraged—but we also think that that judgment should rest with the financial stability regulator, the Financial Policy Committee, and not with the Chancellor. We argue that the regulator will want to consider long transitional arrangements, particularly for building societies—the Minister mentioned his concerns about this—as some problems particularly apply to those with large mortgage books. In our first report, paragraph 295 and the paragraphs preceding it go into the issue in some detail.
	We also argue that the Bank of England should provide an annual assessment to Parliament on risk-weighting. It is clear to anybody who has considered the
	composition of risk-weightings and how they are derived, including the fact that they are based on modelling by the banks themselves, that to rely on risk-weighting alone would be a perilous task. It is vital that that should be supported by a robust leverage ratio, as risk-weightings are not a good measure, on their own, of overall balance sheet risk.
	The Government have rejected all those suggestions and, frankly, I find it surprising that they cling to the line, which we heard again today, that we should wait for Basel—that is, that we should wait for other countries to decide. As many witnesses have said, it is for us to sort out what is best for Britain. We need to work out what is right for our industry, rather than waiting for a lowest common denominator decision from the Basel group. I was a little disappointed to hear more in that tone from the Government today.
	From time to time, the Government even remind us, as they did today, that the transfer of the power to the Financial Policy Committee, if and when it happens in 2018, should occur only after it has been reviewed. In other words, it is possible that the Government might conclude that it should not be transferred at all. I think that would be a grave mistake. Getting leverage right is crucial to the future of the banking industry. With twin peaks in place and the financial policy up and running, it must be right to give that power to the FPC.
	A second major outstanding area of disagreement is the Government’s rejection of a second reserve power for industry-wide separation. Our first report made it clear that this should be exercisable only after a fully independent review, after a recommendation from the regulator, and with Treasury approval. Not only did the Government reject the second reserve power, but in their first published response they even rejected the case for an independent review after a few years to assess the effectiveness of the ring fence.
	On that last point—the need for a review—when the Chancellor came before the Committee about a fortnight ago, he appeared to be a little more flexible and he said he would consider it, and I noted the more emollient tone that we heard from the Minister today. I very much hope this presages some action on that point. I hope the Chancellor will give very careful consideration to the two points that I have raised here and that we raised in the report, both on leverage and on general separation.

Andrew Love: The Chancellor also said to the commission, in response to the second reserve power, that it would be rather undemocratic. How does the chairman of the commission respond to that?

Andrew Tyrie: I do not think it is particularly democratic to give the authority directly to the Chancellor of the Exchequer, but I understand what he means if he thinks that Parliament should be given some opportunity to debate the issue. It is possible that some scope for flexibility could be built in to reconcile the point that he is making and the point that the commission is making. What would be unacceptable would be for the legislation to reach the statute book without a power of general separation and without there having been a thoroughgoing independent review. If those are in place, the extent to which Parliament can be involved a second time, and
	the extent to which the Chancellor himself should trigger that involvement, is something on which we could show flexibility.
	I said that I hoped the Chancellor would think carefully about leverage and general separation, but there are a good number of other issues to which I hope he will give some thought, most of which have, at least briefly, been mentioned so I will not linger on them. I know that other Members want to speak, so I shall cite just three or four.
	On derivatives, the Government appear completely at odds with the Vickers review and somewhat at odds with a slightly modified version of the same point that has been put forward by the commission which I chair. I will not delay the House now by going into the detail.
	I hope the Chancellor will also consider a point that has scarcely been raised so far today—the need for the imposition of the so-called sibling relationship between the two parts of the ring-fenced bank under a single holding company, rather than the parent-child relationship, which was originally proposed in the Vickers report and which the Government still support. There are good corporate governance grounds and other grounds for supporting that proposal, which won widespread support in evidence that we took on it.
	I hope the Chancellor will also think carefully about the way in which individual banks demonstrate whether they should benefit from a PLAC exemption—an exemption from the requirements of primary loss-absorbing capacity. This is a complex area which mainly affects banks headquartered in the UK with large overseas subsidiaries and branches. It is an issue which needs to be approached with considerable care. We thought very carefully about it and came forward with a balanced recommendation. On that, too, so far I have not seen enough flexibility from the Government.
	The issues in the Bill are crucial for Britain. The industry is a great one, but it has serious problems. The Bill will address only some of the sector’s structural problems, and there is a lot more to be done. The parliamentary commission expects to produce its final report in May and that will seek to address some of the wider issues, the problems of standards and the culture in banking. We have just had a shocking LIBOR scandal and the wholesale rigging of crucial wholesale markets, and we have seen the equally shocking rip-off of consumers in the payment protection insurance scandal and of small business in the interest rate swap scandal. Those and other revelations, which have included sanctions busting and money laundering, reflect deep-seated problems of standards in banking.
	Neither the Bill nor our proposals in May, nor for that matter any global initiatives under way, will solve all those problems. In fact, many of them will perhaps take many years—decades—to address. But something can and should be done, and that is why the Government are right to have made a start with this Bill. I very much hope that they listen to what the commission has said about it, because if they improve it further, along the lines that we have proposed, it can make a substantial contribution to a much stronger banking industry in Britain.

Pat McFadden: I would like to begin where the Minister began, with this issue of the British dilemma: the relationship between
	the size of our financial services industry and the rest of our economy. It is right that it is a very big UK industry. It is a big contributor to taxes, as the Minister said, and it is a major employer. It has a cluster of expertise around it, including law, accountancy, and consultancy services, which are also important contributors to our exports.
	There are two views that we can take because of that importance. One is the view, sometimes canvassed, that because of its size we cannot touch it, or only in a minimal way, because if we harm this huge industry it will go to Singapore or the United States; it will go somewhere. But there is another view, which I would like to advance in this debate, that the very size of the industry in relation to the UK economy places a responsibility on us to ensure that that size does not damage the interests of UK taxpayers or the real economy.
	We have seen through the crisis that occurred several years ago precisely how damaging failure in that industry can be to the wider economy. I do not have to remind the House about the results of that failure in terms of the bail-outs, the deficits and the decisions about tax and spending, the consequences of which our constituents are living with today and will be living with for many years to come. The approach that we should take to this British dilemma is to say, yes, the industry is valuable and important, but because of its very size we believe in the need for particular measures in the UK to insulate us from wider damage. Simply to stress the size of the industry and to ask for it to be left alone whenever someone comes up with a regulatory proposal is, to put it in the language that bankers would understand, a one-way trade, and a one-way trade is not good enough. We need a two-way trade that protects the interests of taxpayers too.

Mark Field: The right hon. Gentleman was a Minister in the Department for Business, Innovation and Skills at the time of the bail-outs of the banks, which are commonly regarded as a great success. As part and parcel of looking back on the past while also preparing for the future, does he recognise that elements of those bail-outs were not quite the success that they were portrayed as at the time? To get out of the large positions that we still hold in Lloyds Banking Group and RBS with any profit, let alone the large profit that perhaps we should have been negotiating at the outset, seems a long time away. Does he recognise that mistakes were made over the bail-outs which will be with us for many years to come?

Pat McFadden: One of the reasons for having this debate is that when the crisis hit in 2007-08 there was no proper resolution mechanism or bail-out regime in place to ensure that bondholders, rather than taxpayers, were on the hook for bank failure. We are having this debate precisely because we did not have the tools in place in legislation to deal with the global crisis when it unfolded. As I have said, what we need is a two-way trade.

Mark Field: I do not buy into the argument that the tools were not in place. In reality, it was not that many of the businesses were too big to fail, but that they were too interconnected, which I accept put us in a very different position from that in any previous bail-out. In relation to any insolvency or restructuring, there were
	and are protocols in place, and they should have been adopted to ensure the best value for the taxpayer in the long term. That did not happen in 2008-09.

Pat McFadden: If the hon. Gentleman believes that the tools were in place, I must refer him to the Chancellor, who is constantly saying that his predecessor, my right hon. Friend the Member for Edinburgh South West (Mr Darling), had no alternative when the crisis hit in 2008.
	Let me turn to the Bill and some of the issues before us today. There is broad agreement on the need for some kind of structural separation between retail and investment banking. It is important to understand that the point of ring-fencing, as recommended by the Vickers commission, is not to ensure that no retail bank can ever fail—that is impossible—but to make failure, if it does occur, more manageable by insulating the risks and focusing the resolution effort on the essential services that the Government judge it in the public interest to protect: people’s savings, the payments service and simple consumer and SME lending. It would be going too far, and it would be far too rash, to say that that solves the “too big to fail” problem. However, ring-fencing ought to reduce the risks of future failure to taxpayers and the wider economy.
	As the hon. Member for Chichester (Mr Tyrie) has said, the parliamentary commission, on which I serve, made two proposals in relation to structural separation. The first was the reserve power to separate individual banks should they try to burrow under, climb over, erode or get through—or any other metaphor that has been used—the fence, and the Government have accepted that recommendation. The second was to have a wider power to enforce separation on the sector as a whole. That second power would be needed precisely because problems in the sector do not come in the neatly wrapped form of one institution. As we saw in 2007-08, contagion is a fact of life in banking; the weakness of one can quickly affect others. Cultural problems in one part of the sector also spread quickly. It is precisely because problems in the industry are often widespread that there is a strong case for taking a reserve power to enforce separation on the sector as a whole, in the event that the sector tries to get around the intention of the Bill.

Stewart Hosie: I am not yet convinced about the reserve power and have many questions. The three banks that actually collapsed were Northern Rock, Bradford & Bingley and Dunfermline, all narrow mortgage banks. How would the ability to separate investment from retail banking have helped in those circumstances?

Pat McFadden: The hon. Gentleman neglects to mention RBS, a universal bank, which needed major intervention to bail it out.
	The Minister has said that he does not want wider separation because the Bank of England does not want it. It is true that the Bank of England has expressed some reservations about the power if it were to be wielded by the regulator. I took the opportunity to ask the Governor about it last week when he appeared before the commission. He replied that
	“a provision so important that it affects the entire sector is one that both de facto and de jure will and should be taken by Parliament.”
	When I explained to him that it had never been the commission’s recommendation that this be a policy decision taken purely by the regulator, and that all along we had been clear that it was a decision for Government, he said:
	“As long as the decision is taken by Government, we would have no objection to that.”
	I hope that we will no longer hear Ministers saying that they are rejecting this power because the Bank of England is opposed to it. This should of course be a decision taken by Government. As for the Chancellor’s point that it would be “undemocratic”, what is undemocratic about holding a proper review into legislation passed by this House as the Banking Commission suggests, or about taking a reserve power the exercise of which would involve the parliamentary process of debate and approval? The truth is that it would not be undemocratic at all.

Kelvin Hopkins: Will my right hon. Friend give way?

Pat McFadden: I am afraid that I want to make some more progress.
	This is not, as the Minister argued, about introducing two policies at once; it is about introducing a policy and making sure that it is adhered to. As the hon. Member for Wyre Forest (Mark Garnier) said in this House a few weeks ago, the banks have nothing to fear if they adhere to the spirit and letter of the Bill. It need not introduce uncertainty, as some have argued; in fact, it ought to provide certainty that we are serious about the ring fence.
	On capital and leverage, it is absolutely true that in the run-up to the crisis banks were over-leveraged, and that is because they held too little capital against the risks that they had. The Vickers commission was very clear about that. It recommended a future leverage ratio of 25:1, which is still quite high in historical terms, while the Government are recommending 33:1 because that is the internationally accepted Basel outcome. Without going into any more detail, I just say to the Minister that this goes back to the one-way trade to which I referred. It is a really important question running through all these reforms. If, every time we rub up against an issue, we say that we cannot damage the industry because it is so big here in the UK and we therefore have to stick to the lowest common denominator of international reforms, we will not be doing our duty to the UK economy or to UK taxpayers. If we have learned anything from the crisis of 2007 and 2008, it ought to be that there is a case for taking particular measures here in the UK precisely because of the size of the sector in relation to our wider economy. That is the basis on which we should judge the correct degree of leverage for the banks that operate in the UK.
	Then there is the question of resolution and bail-in: in other words, what happens when a bank fails, and who is on the hook for that failure? In 2008, it was the taxpayers, not the bondholders, because a resolution mechanism was not in place in law that could allow for normal insolvency procedures were those to whom the banks owed money to take the risk. A very important part of the reforms is to change that situation. Bail-in is
	signed up to by the Government, but, like my hon. Friend the Member for Nottingham East (Chris Leslie), I am very curious as to why the Government are pursuing this through the European resolution and recovery directive. I would have thought, particularly after last week, that the Government might be somewhat nervous about pursuing a major financial services reform through a European directive. I return again to the one-way trade argument. Surely, because of the importance of this industry here in the UK, we should legislate to make sure that bondholders take a future risk and not UK taxpayers, and we should not leave it to the very uncertain process of a European directive negotiation. That might work out fine; there might be spontaneous agreement among the 27 member states. However, I am sure that the Minister agrees that that there is a very real possibility—this is not uncommon—that that would not be the case. I ask him to think again on the bail-in regime and to ensure that a proper UK decision is taken rather than leaving it all to a European directive. I would have thought that Government Members would support such a suggestion.
	In conclusion, I want to reiterate the point about time. The parliamentary commission, which was set up by the Chancellor, has spent six months taking in—the chairman, the hon. Member for Chichester has done more totting up than me—60-odd oral evidence sessions and much written evidence. It is simply not good enough for the Minister to say that he will take the Bill out of Committee by the end of April, before we issue our final report. The Opposition supported the establishment of the parliamentary commission after the House had voted on the issue. We expect its recommendations to be properly considered by the Government, not swept out of the way by the timetable. I hope that the Minister will think again, because the structural issues under discussion are not the only issues. Important changes still need to be made to banking culture, standards and corporate governance, so that this very important industry contributes positively to the UK and does not put the economy and taxpayers at risk.

Peter Tapsell: I asked Harold Macmillan what the secret was of making a good speech in the House of Commons and he said, “I once asked David Lloyd George that very question and the answer I got was, ‘Don’t say anything interesting or important in the first five minutes of your speech—just wait for the Chamber to fill.” I am not sure that that will happen this afternoon, which is a pity because I believe that if this Bill finishes up as the Act I hope it will be, it will be the most important Bill of the whole of this Parliament. It may stop the second shoe falling, as it did in 1931, to use the phrase of the time. After the stock market crash of 1929 came the slump and the 1931 crisis.
	In 2007-08—but in 2008 in particular—we saw the greatest financial crisis since the 1930s, which resulted in almost a decade of slump that was only solved by Adolf Hitler. If we can get this Bill right and make sure that 2008 is not repeated, it will be an enormous achievement.
	Hank Paulson is the former head of Goldman Sachs and was US Treasury Secretary at the time of the 2008 crisis. If hon. Members read his book, they will see that
	the critical day was 15 September 2008. He says that everybody who mattered in finance was in his room and that, although he is a big man who was a famous university footballer in his youth, the stress and strain was so great that during the course of the conference he had to leave the room twice to vomit. He writes that on that day capitalism was on the verge of total collapse. I think that people have forgotten the seriousness of that crisis.
	I believe that crisis was more important than 9/11. As it happens, I woke up in my club in New York on the morning of 9/11, so taking part in this Second Reading debate means that, during the course of my life, I have been present at two very important events. The fact is that the 2008 crisis ruined the lives of millions of people all over the country. Many of my constituents are suffering real hardship as a result of the measures tt had to be taken to deal with the effects of the crisis, and the same is true right across the world. We really must prevent it from ever happening again, but I fear that there is a real danger that it could happen again.
	The high spirits—to put it at its most polite—of investment bankers do not seem to be unabated. Many banks are in a weak state, including, as we heard only three or four days ago, Goldman Sachs itself. Some major European banks are close to bankruptcy. This Bill is a belated but welcome attempt to prevent the banking crisis of 2008 from happening again.
	The Opposition spokesman is the hon. Member for Nottingham East (Chris Leslie) and in far-off days I was the hon. Member for Nottingham West, so we have a certain amount in common. Our views on regulation also have a great deal more in common than he has indicated. There is no reason why he should know what my views are on anything—nobody really does and I only do on a day-to-day basis. He should look up a speech that I made on 16 July 1984. I spoke for 40 minutes—in those days, Back Benchers were allowed to make proper speeches—and strongly opposed the deregulation of that time, which, in those days, was called big bang. Deregulation had suddenly became tremendously fashionable. Lady Thatcher, Keith Joseph and all the monetarists were terribly keen on it, but one of the reasons why I resigned from the Opposition Front Bench on which the hon. Gentleman now sits and why I refused to serve in Margaret Thatcher’s Government is that I disagreed with it.
	I reread my speech last night and if the hon. Gentleman reads it, he will see that I predicted, very clearly and unbelievably presciently—I was much younger and more alert then, and knew how to put points so much better than I do now—exactly what would happen and the reasons why. I also predicted the tremendous decline in the moral standards of the financial world that would result from the internationalisation and Americanisation of the City of London. That, of course, is what, unfortunately, happened.
	In that speech against big bang, I opposed the absorption of high street banks, merchant banks and stockbroker firms—I was a partner in one—into universal banks, free to speculate, on their own account, with the money of depositors and large sums of borrowed money in what is now called leverage, which we and America pronounce differently. I will not go into the arguments about ratios, except to point out that, even as respectable
	a hedge fund as Carlyle was dealing on a ratio of 30:1. The leverage situation was one of the causes of this disaster.
	At the beginning of this Parliament I described the banks as today’s over-mighty subjects and that is what they are. They have been strongly lobbying the Vickers commission and the Treasury not to deal effectively with the bank that is too big to fail. I take the view that if a bank is too big to fail because of the systemic effect that would have, it is too big to exist at all and should be broken up now. As a start, I strongly support the recent recommendation of the Governor of the Bank of England to break up the Royal Bank of Scotland.
	Glass-Steagall imposed an absolute separation between commercial banking and investment banking. It also banned proprietary trading in commercial banking. The essence of Glass-Steagall in 1933, by which Roosevelt managed to save the American banking system, was to root out conflicts of interest, which are the evil at the heart of universal banking. Banks were told that they had to choose between servicing a client and promoting their own short-term interests. Combining the two inevitably creates conflicts of interest that lead to many other problems. That is what Mr Paul Volcker, unquestionably the most distinguished and experienced banker in the world, urged on America in what became known as the Volcker rule and on our Parliamentary Commission on Banking Standards, which has been chaired so ably and brilliantly by my hon. Friend the Member for Chichester (Mr Tyrie).
	I read the accounts of what is being said and the questions that are being put at the parliamentary commission with great jealousy, although I do not want to be co-opted to it. Its second report reached me just before lunch, and I chose lunch. However, I will read the report and all the subsequent reports with the greatest possible interest. I find it difficult to understand how anyone who has read the complete account of Mr Volcker’s evidence to my hon. Friend’s commission, as I did at the time that it was published, could fail to be persuaded that we need, in effect, a complete return to Glass-Steagall.
	What I mean by a complete return to Glass-Steagall is that we should have none of this nonsense of ring-fencing, which used to be called Chinese walls. It never works. Chinese walls turned out to be papier-mâché. I worked in the City for 40 years and I promise Members that it is impossible to make that work.

Andrew Bridgen: Does the Father of the House remember that it was President Bill Clinton who relaxed the Glass-Steagall rules in return for the American banks lending to sub-prime borrowers? Were not the seeds of the financial crisis sown at that point?

Peter Tapsell: Yes, they were. The American banks turned mortgages for people who could not afford to pay the interest into derivatives disguised as bonds and then sold packets of them—500 or so—all over the world. They could not have done that under Glass-Steagall. That really makes the point, so perhaps I ought to sit down now.

John Mann: It is a pleasure to follow the Father of the House and to agree with many of the sentiments he expressed.
	I look at the Bill and at the Ministers and my reaction is to ask, “Is this it?” Considering what we have been through and the problems in British and world banking, is this Bill the best that we, as legislators, can do? If that is the case, it is no surprise that we are increasingly derided outside this place.
	The Minister should have set the context. I offer him my file detailing the top 50 banks in the world by assets. What unifies those top 50 banks is that every single one, without exception, either has been subject to major convictions for criminal fraud recently or is being investigated for criminal fraud. The Americans have been very good at portraying this as a British problem. They have, perfectly properly, exposed problems and illegalities in British banks. However, their banks are doing the same and worse, as are banks the world over. That sums up the problem. What other industry could have all 50 of its top players committing criminal fraud at the same time while the world’s legislators are happy to do just a bit of poking, a little juggling and a few bits and pieces?
	I do not disagree with the bits and pieces, especially if there is strengthening and improvement, but is that all we are going to do? I heard reference to the 1930s and I have heard that time used before as a comparison. We are doing the same thing with the same boldness, but it did not work in the 1930s because 1931 turned into 1933 and into 1939 to 1945. That was the consequence. We therefore need to be significantly bolder in what we are doing. This Parliament, like other legislatures, remains cowed by the bluster and power of investment banking.
	There are models that are different from the British model of investment banking. The Chinese have a very different model. We seem to be forgetting how successful that model is. While we are sellotaping our banking system together, they are building a competitive base that will dominate the world economy for generations. It is as if we are the fools at the Chinese emperor’s ball. By using a model of cheap finance, concentrating on raw materials and technological transfer, investing in skills and infrastructure, and planning for the medium term, China is showing how ruthless simplicity creates permanent competitive advantage. That contrasts with the short-term monetary advantage that our investment banking model offers. We play with paper while the Chinese build with concrete. Worse than that, they are developing tomorrow’s building materials, designs and visions.
	A simpler, democratic model that similarly contrasts with the British investment banking model is the German model. An example is KfW, which was formed in 1948. Its lending to business in 2011, the last year for which I could find figures, was €70 billion out of a loan portfolio of nearly €500 billion. That is a less risky and less speculative model than our money market, casino model. Just like the Chinese model, which I do not recommend but do admire, the German model is beating ours. The danger is that we are playing yesterday’s games, whereas those countries are playing tomorrow’s games. That is a bit like the 1930s.
	We must not be fearful of investment bankers. We should not just create an electric ring fence between retail and investment banking, but should consider
	whether the model that we have is fit for purpose. One thing that it certainly is not is competitive. We have allowed a model that does not create competition, and the Bill does nothing about that. There is the hope of the challenger banks, but they have not been very successful and there is more that we could do to help them. Over the past 20 years in this country, we have stripped out competition.
	I would like to be able to follow the advice that I was given when I first got a bank account: “Put your money somewhere safe. You won’t get a great deal of interest on it compared with other places, but it’ll be reliable and it’ll help you get a mortgage and buy a house in the future.” It was called a building society. That was only one part of the model, but there were a lot of them all over the country not many years ago. The problem with the Bill is that there could end up being even fewer of them and a greater concentration of the tiny number that there are. Building societies are only one part of the financial services market that I want to see, but they should be a significant part—at least 30%, if that is what consumers want, but consumers have not been given the choice.
	There is no real competition. Where is the national interest test for takeovers and mergers? The vast majority of investment banking’s speculative profits over the past 20 years has come from the mania for takeovers and mergers. Germany has such a test, and would anyone try to merge or take over a major conglomerate in China? I do not think so. A national interest test should be in place.
	The two state banks should be broken up, and the Halifax building society should be recreated out of them, but we need far more than that. Competition should be created in the marketplace and enforced. If that were to happen, consumers would flock to that model in large numbers. I would like to see a model of tiered risk. I do not believe the idea that we can guarantee every type of saving for ever up to a certain limit—£85,000, or whatever it ends up being in the future—is rational. I would like a real choice between low interest rates and total security for my money, and medium or higher risk. We should give the consumer the choice rather than have the pretence that the state will always be able to provide a bail-out. From the moment such a pretence is created—we have essentially had it since the war in this country—there will by definition always be banks that are too big to fail. The fundamental logic of that cannot be broken.
	There are many other bits and pieces that I would like to see. One of the Treasury Ministers ought to be in Europe full time. Whether or not I agree with what the coalition argues, one Minister ought to be negotiating, pre-warning and advising on and helping to create what comes out of Europe. I would like to have the bonus cap and the Government disagree, but the point is that we have not been there at the table, which is where we need to be. That is a fundamental weakness, as it was under the last Government. It would be wise politics to make that change.
	Auditing has been mentioned, and another minor point that ought to be in the Bill, on the micro level, concerns compliance officers in banks. They are the office boys—there is no qualification for them and no basis of standards. It would be pretty easy to sort that out and ensure that there is a qualification to be a
	compliance officer. We should raise their grade and standard. We should not make a fetish of degrees, but it ought to be a graduate-quality job, which it has not been. That is a fundamental weakness in how banks see themselves and compliance.
	A major change that I would like to see concerns tax loopholes. There has been a lot of talk about them, but when it comes to banking the biggest loophole involves the UK Crown dependencies. We have a significant degree of influence over them and they rely on us for their legal system and their defence, but we allow them opaqueness in finance, whether banking, commercial, personal or a combination. No wonder my file is full of cases of money laundering and other criminal corruption that have been found out, and those are only the ones that people have been able to see. That opaqueness should go, and we have the power to do it. Those are the big issues that have not been addressed in the Bill. I implore my party to get on the case and get it amended.

Mike Thornton: Thank you, Mr Speaker, for allowing me to make my maiden speech during this important debate.
	Being able to represent the people of my own local area here in the Chamber, with its history and traditions, is an immense privilege and honour. I begin by paying thanks to all those who helped me during the by-election. I thank the whole Liberal Democrat campaign team, whether local, from our headquarters or from around the country, for their tireless work, efficiency and constant cheerfulness, especially considering the weather. Most importantly, I thank the voters of Eastleigh, who have put their faith in me. My first duty is, and always will be, to the members of my constituency, whoever they vote for.
	I am surprised, overwhelmed and extremely grateful for the incredibly warm welcome that I have received from you, Mr Speaker, from hon. Members of all parties and from the staff of the House. I must say, I am still trying to absorb all the help and advice they have given me, and I am not exactly sure who has given me what, I am afraid.
	Let me pay tribute to my immediate predecessor, Christopher Huhne, whose contributions must not be overshadowed by recent events. He was a dedicated constituency MP, and throughout the constituency I have met thousands of people who are extremely grateful for the help that he has given them. Furthermore, let us not forget his outstanding service as Secretary of State for Energy and Climate Change, driving our transition to a green economy while playing an internationally recognised role in combating climate change.
	I was delighted to campaign with Lord Chidgey, the previous Member of Parliament for Eastleigh, a man held in such high regard by my constituents that when I was walking around and knocking on doors with him, after putting thousands and thousands of photos of myself through people’s doors and having been on television and in the newspapers, what did they say when they saw us? “Who’s that chap with Lord Chidgey?” If I can be as well remembered as he is, I will feel that I have done a good job.
	Although many hon. Members may feel that they already know my constituency after pounding its streets recently, I ask them to please indulge me by letting me
	talk a little bit about it. Before there was Eastleigh there was Bishopstoke, which just happens to be where I live, and I have served as a councillor there for the past six years. Bishopstoke was mentioned in the Domesday Book, and it was to Bishopstoke junction that London and South Western Railway moved its railway works and employees lock, stock and barrel in 1891. Indeed, it was the company that proceeded to change the name of the station and the surrounding area to Eastleigh. Bishopstoke has never forgiven it.
	As the years passed, Eastleigh developed as a bustling railway town with a strong industrial identity and a skilled work force. Aside from the railway, Eastleigh played a major role in the development of Britain’s aero industry, and it was at Southampton airport, formerly Eastleigh aerodrome, that the Spitfire was designed and built. Of course, local people remember with much pride and some sadness that its designer, Reginald Mitchell, foreseeing the awful shadow of war, defied his doctors and literally worked himself to death to ensure that the Spitfire would be ready in time to defend our country against the evil of the Nazis.
	I am pleased to say that that proud tradition of manufacturing and engineering continues in Eastleigh —at the rail site now operated by Knights Industries, at GE Aviation Systems in Hamble and through the development of high-tech industries including SPL Lasers and Lubetech in Hedge End and Prysmian in Eastleigh town, which I believe our Prime Minister visited during the campaign. These firms demonstrate that the key to a sustainable and balanced economy is to embrace both the old and the new. Eastleigh is fortunate to have a much lower rate of unemployment and youth unemployment than the national average. Indeed, both have dropped recently. Of course, this week is national apprenticeship week, and I celebrate the fact that more than 28,000 apprenticeships have been created across Hampshire since 2010, many of them helped by Eastleigh college, which has a superb reputation.
	In Eastleigh new businesses are opening at an increasing rate, with more than 100 starting up last year due to the support and far-sighted approach of our borough council led by Keith House. Despite that success, however, and having spoken to businesses both as a candidate and previously in my professional role, I have found that business after business is struggling to obtain financial support from our banks to enable it to grow and expand its work force. The Business Secretary has worked tirelessly to improve that situation; I am confident he is succeeding but the banks seem too slow to respond. The funding for lending scheme is a superb initiative, but many banks seem to believe that its purpose is to enable them to lend to people they would ordinarily have lent money to, just at a lower interest rate. As Mark Twain said:
	“A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.”
	We have seen the start of alternatives such as the extraordinary Bank of Dave, other peer-to-peer lenders, and new banks starting up with a fresh approach. Our traditional banking sector needs to wake up before it finds that its customers have gone elsewhere and that it has joined the penny farthing as an historical curiosity.
	Moving on, one of the great privileges of this job is the opportunity to work with local people—the unsung heroes of the voluntary sector. Such people have been
	labouring away tirelessly in their own local communities, often without much credit and probably no money. From unpaid parish councillors to street pastors, local groups such as the Pilands Wood community association have transformed the area and created an extraordinary sense of community. I would like to mention all the volunteer organisations that contribute so much, such as One Community, Churches Together in Eastleigh, Eastleigh Basics Bank, Acts of Random Kindness—which I recommend to everybody—and Open Sight. I could go on, and I am sorry for not mentioning all the groups, but I would go well past my 12-minute allocation of time.
	My constituency is blessed with some of the best schools and colleges in the country. The Deputy Prime Minister and I were privileged to see the extraordinary partnership between Hamble community sports college and the Dynamo school of gymnastics that delivered an Olympic-class gymnasium. I am eternally grateful for the support that my daughter received from superb teachers and staff at Stoke Park infants and junior schools and Wyvern technology college. Wildern, Crestwood and Toynbee schools have superb reputations, and I believe we have been honoured today by a visit from Eastleigh’s own outstanding Barton Peveril sixth-form college. I also want to mention that a friend of mine who taught at that college is sitting in the Gallery now.
	I will leave the House with a parting thought about how fortunate I am to be able to step outside my front door and in minutes be in the beauty of Stoke Park woods or walking down the Lloyd to the water meadows, while at the same time being a 15-minute walk from Eastleigh town with its variety of shops and restaurants.
	I thank you, Mr Speaker, for giving me the opportunity to speak, and I thank hon. Members for listening with such courtesy. I suspect that next time I am called I will not be heard in quite such a manner. I look forward to serving my constituency, this House and my country for many years, and consider it an honour and a privilege to be here.

Alison McGovern: I congratulate the hon. Member for Eastleigh (Mike Thornton) on his maiden speech, which was a really good first contribution. As a former railway person, I know that the town of Eastleigh is extremely important in that industry, but there is no more important a subject for him to make his maiden speech on than this Bill. I offer him my sincere congratulations.
	Let me say why I think this Bill matters. By way of setting the scene, I want to explain something from which I think the financial services industry suffers. There has been a recent influx of Members to the Chamber for this debate, although I fear that it is not entirely due to the subject under discussion. Normally, the financial industry is quite a niche subject, which is partly to do with the fact that people often talk in code about financial services. There is a certain language that people are supposed to use when talking about financial services, and I suspect that those who work in the industry feel a bit as if they are part of a special club. They use words that normal people cannot really understand; they repeat their shibboleths and some of them live in their gated community, quite apart from normal society. Well, hands up, Mr Speaker, it takes one to know one; Parliament is just the same in so many
	ways. If we make things sound complicated, people will think we are really clever, but I think we should learn that democracy and financial services are too important for that.
	Unfortunately, the culture in financial services makes scrutiny much harder than it ought to be. We now know that in the 2008 crash, the real risks taken by the banks were hidden, and that happened because of the insider culture. We are yet to hear from the Parliamentary Commission on Banking Standards about the cultural aspects of the financial services crash, so I repeat to Ministers earlier pleas about the timing of that advice. As I have explained, cultural aspects are important for effective scrutiny and good legislation in the future, so can we not ensure that we proceed with the best possible advice from the parliamentary commission? We in this House would probably all agree that we have been sent here to speak up for ordinary people, but what happens in the City’s square mile matters on every high street in Britain. It is not good enough anymore for financial services to be a niche interest in Parliament.
	Growing up in the 1980s and 1990s I often felt that Merseyside was being buffeted and shaken in the interests of the City of London. Given the Chancellor’s words over recent months, it has sometimes felt a little like my teenage years on playback. The Chancellor talks about defending the interests of London as a financial centre—for example on leverage ratios—but how much do financial institutions worry about the average British high street?

Mark Field: Will the hon. Lady give way?

Alison McGovern: Let me finish the point, and then of course I will give way to the Member who represents the square mile.
	Let us be honest: some financial institutions do worry about that, and some are very large employers, and I know that many people in the financial services would agree absolutely with my point. However, wage inequality skews influence to insiders at the top.

Mark Field: Does the hon. Lady recognise that as well the hugely important business, which is perhaps based culturally within the square mile in my constituency, a vast number—indeed, the majority—of jobs in UK banking and financial services are based not just outside the City but outside the capital? She will be aware, for example, that not too far from her constituency in the City of Chester, a huge number of employers employ many thousands of people in the financial services.

Alison McGovern: That was the point I was trying to make, and I refer the hon. Gentleman to comments made by my right hon. Friend the Member for Wolverhampton South East (Mr McFadden), who said that although that is true, it is not enough to say, “We’re a big employer; leave us alone.” The influence of the financial services in the City is greater than that, and that will not do anymore.
	Wage inequality in financial institutions skews influence to insiders at the top. This is a classic insider-outsider problem, and we in Parliament must work out how to scrutinise more what goes on in the City. I believe that the Royal Bank of Scotland’s final report makes great play of how it is finally a living wage employer. Well, good for RBS, but it is perhaps a little too late.
	On the bonus culture, the Government have said that there could be a perverse incentive in controlling bonuses and that people might be paid more if their bonuses are reduced. That is true if—and only if—they think the following two things: that it might not be better to have more fixed costs and less turbulence, and that we might want to think about the impact of those highly variable costs on incentives; and, secondly, that the overall remuneration of bankers is just fine and the current inequality in the financial services sector is okay. Well, it is not okay. The hon. Member for Cities of London and Westminster (Mark Field), who represents the City, mentioned the many people all over the country who work in financial services, but when I make the point about inequality in the financial services sector, it is those very people, and the money in their pockets, who I am thinking of.

Pat McFadden: On pay and reward, does my hon. Friend agree that it is unfair that the vast majority of financial services workers, who are in ordinary branches of banks and so on and paid normal, average salaries, get tarred with the brush of excess and of salaries way out of kilter with what normal people earn, when in fact that is taking place at the very top of banking and not in the local branch?

Alison McGovern: I could not agree more. It is also not okay that people in regular branches were pressured to sell all kinds of products, which we know happened.
	I was very much taken by the contribution made by the Father of the House, the right hon. Member for Louth and Horncastle (Sir Peter Tapsell). Unfortunately, he has left his place. I was going comment on the deregulation of building societies and the big bang back in 1986, but as he has already covered that very well, I will not do so except to say this. On reading Lord Lawson’s account of the impact of the 1980s boom on the real economy, I think he is clear that he thinks he made a mistake. We should listen to the lessons of history. We should also congratulate the right hon. Member for Haltemprice and Howden (Mr Davis), Lord McFall and Baroness Kramer on establishing the New City Network, which is trying to find ways to answer some of the questions I have raised.
	To turn to my second point, which is more specific to the Bill, we need to ask ourselves what kind of economy we want. My constituents, unsurprisingly, are interested in having a job to go to, and in having enough money in their pockets to feed their family and have a roof over their heads. They want a Government who do not tell them that they will cut debt to solve the problem, only to see debt rising. Notwithstanding that, the Bill ought to help finance to underpin a growing economy. Will the ring-fence help us do that? That is determined by what we think banks are for. We should say that banks are not just like any other industry: cavalier risks are totally unacceptable, and that is why the ring-fence matters. We need to assure ourselves that we have done enough to provide for business continuity in a real, productive economy.
	I am not sure that the ring-fence is necessarily enough to do that, however. What about the examples of straightforward bad lending? What about investment banks with no retail operation, such as Lehman’s in the US? What about retail banks that went under in this
	country? How does the ring-fence de-risk in those cases? Then there are the comments from the hon. Member for Chichester (Mr Tyrie) about the industry marking its own exam. That gives rise to the need for reserve powers, which other hon. Members have described well.
	We need to be clear that some in financial services argue against separation at all—they worry about the cost to the bank. I am afraid that that sounds a little too much like special pleading. Saying that this will hurt lending to the real economy because it passes costs on just sounds like tit-for-tat: “Block our preferred business model and we will punish small and medium-sized enterprises, small business and the average small lender.” Why do they have to do that? I am not sure that one necessarily leads to the other—it is about their business model. How does the Bill help with protection from banking failure in other European countries?
	We have heard other hon. Members talk about competition, so I will not dwell on that for too long, but the Government must be clear and Ministers must say exactly what kind of competition they want. Any economics textbook will tell us that three firms are enough for competition, but I think we all think that common sense dictates otherwise. How many new entrants to the market are sufficient? More importantly, what kind of competition do we want?
	There is nothing in the Bill about ownership, but perhaps there should be. What are the Government doing to open up banking to more mutuals? Could we look back over our history at what happened to building societies, as my hon. Friend the Member for Bassetlaw (John Mann) mentioned, and see whether there is room for change in that sphere? I have raised before the Financial Services Compensation Scheme and pre-funded deposit insurance. If we compare the EU’s position on making sure that banks commit properly to the UK’s position, I wonder whether Ministers have got that one right.
	In conclusion, this is a shell of a Bill and we can do much better. To paraphrase John Donne, financial services is not an industry entire of itself; it is a piece of the continent, a part of the main. We therefore need a greater commitment from the industry that it is prepared to change, and from the Government that they are prepared to legislate to help it do so. The impact of the financial crash on people in my constituency was huge, be that from the threat of losing their house, or losing their job. That is too important for this subject to remain a matter of technical, niche interest. The Government must be much stronger and listen to the voices who are calling for change.

Mark Garnier: I add my congratulations to the hon. Member for Eastleigh (Mike Thornton) on his maiden speech. I remember when I made my maiden speech: it was the most terrifying event of my life. If he continues with that masterful performance, the good people of Eastleigh will be very well represented in the years to come.
	I am grateful to my hon. Friend the Member for Chichester (Mr Tyrie), who is no longer in his place. He started by talking about the members of the Parliamentary Commission on Banking Standards. As one of those
	members, it falls on me to pay tribute to the extraordinary work he has done in the past nine months or so, pulling together what is quite a tour de force.
	At the heart of this debate lies the balance of interests within banks. Any commercial organisation—or, indeed, any bank—must balance the interests of its shareholders, the interests of its staff, and, importantly, the interests of its customers and the wider society at large. When those interests become unbalanced, we end up with problems. When staff are over-incentivised with bonuses, they will take greater risks at the expense of shareholders. When shareholders see stellar returns, they will fail to provide the governance oversight needed to protect the organisation. When looking after customers is seen as a tricky task in an ever-increasingly competitive world, the customer takes second place to proprietary trading, and is relegated to providing mere liquidity to help the proprietary traders. When those balances of interests become too skewed in favour of staff and shareholders, society loses out altogether, with the banking collapses and the bail-outs we saw, and which we are trying to avoid in the future.
	One of the concerns that I have been wrestling with is that of over-regulating our banks. Can we, unwittingly, drive our banks to relocate offshore by supposedly over-regulating them? We need to look closely at the problem. What do we mean by relocating? In part, we are looking at banks changing their domicile, and in part we are looking at the moving of specific operations to different parts of the world. Those are two very different things, and it is important to make sure that we do not confuse them. Setting up a trading desk in Spain, for example, is decided by where the traders want to work. Moving a global bank to Singapore is a very different thing indeed.
	First, these banks are huge. One has to asked oneself the question: who would want to have one of them located in their economy? If HSBC went to Singapore, its balance sheet would be over 1,000% of Singapore’s GDP. Not many countries can take a bank of that size, and, of those that could, do they have the same offering that we have here? There would be no question whatever of any implicit guarantee. London offers some key elements that banks need: we speak English, we are in the centre of the global time zone, we have a transparent and well-tested legal system, and, importantly, we have what amounts to a relatively good regulatory system. All those points are absolutely key.
	The banks benefit from an implicit guarantee—valued at between £10 billion and £40 billion, depending on where we are in the cycle—that comes as a result of the expectation that the British Government would stand behind a failing bank in exactly the same way that we saw in 2007 and 2008.

Steven Baker: I am glad that my hon. Friend raises that point. Does he agree that if we subsidise anything, we get more of it, and that this actually subsidises risk taking?

Mark Garnier: Yes, it does, absolutely. I am going to develop that point in a second, if my hon. Friend will bear with me. We need to get rid of this implicit guarantee for exactly that reason and in order to encourage competition, because competition requires a guarantee for all banks, not just the big banks.
	If we combined a transparent legal system with a robust and secure regulatory regime, international capital would come to this country—because of that security—and because capital would trust the UK’s legal and regulatory system, it would be prepared to take a slightly lower return. London would provide an environment in which the cost of funding for banks would be lower. That cheaper funding, as a result of regulatory security, should replace the banks’ implicit guarantee and thus result in a lower cost of capital. As a result of that cheaper funding cost, which is reliant on good regulation, we should not fear banks relocating when we introduce regulatory reform. They might complain, but they will ultimately thank us for the strongest regulatory regime in the world.
	That also depends, however, on how the Government take forward the Bill. The banking commission has made its early recommendations, and the Government have responded. As we heard from my hon. Friend the Member for Chichester (Mr Tyrie), we are grateful to the Government for listening to some of our recommendations, but they could pay more attention to certain other areas. We want a leverage ratio set at 4% by the Financial Policy Committee, a full reserve power for full industry-wide separation and regular reviews of the effectiveness of the ring fence in order to ensure the most effective and secure regulatory regime in the world. By winning the race to the top, we will ensure cheaper capital funding for our banks and help to preserve our country’s lead position in the financial world.
	I turn to the thorny issue of proprietary trading. The term “casino banks” was coined by someone at a time when I suspect they were keener to play to the gallery than necessarily to address the serious issue of what investment banks actually do. It is important to remember that investment banks raise huge amounts of debt and equity capital, generating thousands, if not millions, of jobs in the UK and around the world in commerce and industry—jobs that create wealth and tax receipts for this country—but there is an element within investment banks of proprietary trading. The important thing is to define proprietary trading. Every bank that makes a loan makes it on a proprietary basis, but no one would want to prevent banks from doing that—it is the key to what they do. Pure proprietary trading, however, for the sole purpose of enhancing shareholder returns—with no benefit to the customer or society—has no place in our banks. It fails the balance of interest test and is incredibly difficult to define.
	We can recognise the evil type of proprietary trading when we see it, but let us take market marking, for example. It provides a service to customers and liquidity to the markets, and so passes the balance of interest test, but at what point does a residual position on a trading book stop being that which is left over from normal market making activities and start being deliberate directional betting? That inability easily to distinguish between one and the other leads me to believe that, although a Volcker rule would probably be desirable, it would be too difficult to impose in a meaningful way. That is why, reluctantly, I come down on the side of not banning pure proprietary trading. If the Vickers proposals that the Bill implements seek to put a ring fence around the deer park, does it matter what type of predator is kept outside? The consumer will be protected from both the wolves of market makers and the tigers of proprietary trading.
	Much of the commission’s work has looked at competition. With a handful of super-huge banks dominating the market, competition is tricky. Long before the commission was set up, however, I spent much time meeting smaller banks, including challenger banks, and those seeking to win new banking licences. It was clear that there was a huge problem with banks being too small to start—the regulatory hurdles facing small banks, such as licence applications and ongoing supervision, distorted the market in favour of the big banks—but the FSA has responded to pressure and had a change of heart. The regulator is moving in the right direction, and I am grateful to the FSA for taking heed of our warnings about new banking application processes and the treatment of asset risk weightings on the balance sheet. The regulator is moving towards greater opportunity for small banks in terms of regulation, which is very important.
	There is also the thorny issue of account switching. Later this year, the seven-day switching programme, which is a significant step forward, will be put in place. I strongly believe, however, that the ultimate goal has to be full account number portability. VocaLink, which provides the payment system services, is considering doing for banks what the telecoms regulator did for mobile phones, and it is making good progress. My hon. Friend the Member for South Northamptonshire (Andrea Leadsom) has done a lot of work on this subject, and for four reasons her proposals for full portability are right: first, it will ensure greater competition, as I am sure we will hear later; secondly, the financial system will be more transparent and so provide greater oversight for the FPC, which is charged with ensuring stability in the financial system; thirdly, in the event of a collapsing bank, full portability will make bank resolution far easier and cheaper; and finally, the legacy IT systems in many banks have their foundations in the ’50s and ’60s, with the punch-card system. At some point, the banks will have to massively update their systems, and combining everything makes huge economic sense.
	What is the point of banks? Why are we so keen to reform them? Those questions are crucial to the whole debate. Clearly, people need a safe place to deposit their money, to manage their finances and to plan for the future, but banks also provide an incredibly important social and economic function. There has yet to be devised a better way of taking money from where it has accumulated and distributing it to where it is needed. Successful investors and business men need a way to get their money to where it will work for them, and those with an idea but no cash need to be introduced to investors with surplus funds. So far, banks have done that job better than anyone else. No matter what we say, they have a fantastic distribution network, which we must utilise to the fullest extent.

Andrew Love: Unfortunately, the banks are not doing a good job of providing loans to small businesses. In particular, those banks in partial public ownership seem to be struggling to do so. Is there any way—a funding-for-lending scheme, for instance—of encouraging more lending from banks to small businesses?

Mark Garnier: The hon. Gentleman is absolutely right. The two of us have spent much time together wrestling with this thorny issue over the past nine months—and
	before that on the Treasury Committee. Part of the problem is that, with the risk weighting of assets, a loan to a small business carries the least weighting, because it is deemed to be one of the greatest risks. The world is putting pressure on banks to reduce their balance sheets and become less risky institutions, and the simplest way to do that is to withdraw lending to small and medium-sized enterprises. That is the natural outcome, if we ask them quickly to reduce their balance sheets. Funding-for-lending schemes seek to bypass the risk-weighting element, but none the less it is incredibly difficult to encourage more of what the regulatory regime sees as the riskiest type of lending. It is a problem we have to resolve, however, because, as I said, there is no alternative way of getting money to businesses.
	It is incredibly important that the Government never again have to bail out banks when things go wrong. Broadly speaking, the Bill is an enabling Bill. There is much more detail about the nuts and bolts to be introduced in secondary legislation, but it is important that it achieves what it is trying to achieve, which is to ensure that banks can go bust without bringing the system down with them. For a functioning financial market to work properly, it is important that poorly run banks be allowed to fail—but elegantly and non-destructively. The Bill will ensure that, in a crisis, the vital parts of a bank can be resolved in a dignified and stable way and that the British taxpayer will never again be left on the hook to bail out bankers for their foolhardy recklessness. That is why the Government are right to introduce it. They were right not to rush into anything, but to have spent a great deal of time listening to Vickers, Erkki Liikanen in Europe and others, including of course the banking commission. For those reasons, I have no hesitation in supporting the Government fully and look forward to working with them as part of my work on the banking commission.

Frank Dobson: I think everyone in the House would welcome a step forward in trying to gain some control over the excesses of the banking industry, but most Members—at least those who have spoken—seem to be dubious about whether the Bill goes far enough. Following on from the speech by my hon. Friend the Member for Bassetlaw (John Mann), I tend to be what might be described as a “Bassetlaw-ist”. I think we need to go much further than most people are proposing.
	We need to start by recognising that the British banking industry is a failure—it was a failure and it remains a failure. Let me remind the House that, of the big four, HSBC lost $27 billion in the crash, while RBS lost $14 billion, Barclays lost $8 billion and Lloyds lost $5 billion. Between them, these masters of the universe lost $54 billion in the crash. It did them harm, but it did a lot more harm to the rest of us. In the recession that has followed their lunacy—matched all round the world by the rest of the world banking industry—British production has lost £700 billion, as a result of the reduction in goods and services that we have produced.
	That is what the banks dropped us in. They did it through all sorts of fancy schemes, in an effort to get rich quick, and for quite a long time they did get rich
	quick. Everybody was told, “You can’t stop us. We know what we’re doing; it’s the market.” Then the market crashed. Under normal rules, if the market crashes, those who crash stay crashed, but that does not happen with banking. That is why we need to change the rules. The banks demanded taxpayers’ money, either to bail them out or offer them guarantees. They said, “You’ve got to do it, otherwise we will bring the temple down and we’ll bring you all down with us.” In other words, “Heads we win, tails you lose” has been the motto of the banking industry.
	That is not all that the banks were doing wrong, we now discover. They were also rigging LIBOR—the London interbank offered rate. Individuals in banks were fiddling, and apparently not a single boss knew what was going on. LIBOR was run by the British Bankers Association, which apparently did not know that any fiddles were going on, so obviously “Ignorance is strength”—this year is the centenary of George Orwell’s birth—was the motto of the British banking industry. People have been prosecuted or threatened with prosecution—they have settled to avoid it—in the United States for LIBOR fiddles, but nobody has been prosecuted here. Why is that?
	There have been several repeated conspiracies—in fact, dozens and dozens of them—to gain financial advantage by deception, which is a common-law crime, so we do not need an Act of Parliament, but we now know that LIBOR rigging was not the banks’ only wrongdoing. Instead of “The world’s local bank”, HSBC’s motto turns out to be “The world’s local money launderer —helping Mexican drug barons, fighting the United States’ anti-terrorism sanctions”. Lloyds—motto: “Banking worth talking about”—was involved in money laundering to help sanctions-busters. Barclays—“It’s our business to know your business”—was involved in dodgy transactions and busting sanctions against Iran, Libya and Burma. Most of us would think that sanctions against Iran, Gaddafi’s Libya and Burma were quite appropriate.
	The banks have also been spending a great deal of time promoting tax dodging. The big four have 1,649 subsidiary companies. For Barclays, HSBC and the Royal Bank of Scotland, a third of those companies are in—where would you guess?—the places where tax is fiddled. They are in tax avoidance places—Lloyds is a bit better, with only 20%.
	Up to now, most criticism, both here and in the newspapers and so on, has been of the investment bankers speculating—“It’s a casino. Separate it out; ring-fence it; break it up”—on the grounds, apparently, that retail banking has been a really big success, when actually it has an appalling record. It was the retail arms of the big four that did all the PPI fiddles and the IRSA—interest rate swap arrangements—swindles. Indeed, the big four sold 34 million payment protection insurance polices. Between them, they are now having to set aside £14 billion to repay people who were swindled. That is what the money is for—simple stuff: it is a swindle. Between them, the big four are employing 10,000 people to administer the system of repaying the money they swindled. It is almost a banking job creation scheme.
	Then there are the retail banks’ interest rate swap arrangements. Some 40,000 agreements with small and medium firms are now being reviewed. The idea was sold by the British Bankers Association to
	“help insulate business customers against fluctuations in interest rates,”
	as the BBA put it, but that is exactly what interest rate swap arrangements did not do. A sample survey shows that 90% of the agreements being reviewed break existing banking regulations, yet small firms were bullied into accepting their terms in order to get a new loan or extend an existing one—if they did not agree, they would not get it.

Jonathan Edwards: Does the right hon. Gentleman agree that some instances of products being mis-sold by the retail elements of banks were driven by the investment arms of those entities? Ring-fencing will not go far enough. If we are to stop such abuses by the retail elements of the universal banks, we have to have full separation of investment and retail banking.

Frank Dobson: Yes, but if we are to get the changes we need, we also need to change the culture in both sectors.
	The banks have never competed with one another, or at least not in trying to get customers. Rather, they have tended to compete by copying one another. When one bank comes up with a wheeze that swindles money, the bosses of the other banks say, “Why are they getting all this money in through this swindle? Can’t we do the swindle as well?” That is presumably how PPI started off at one bank and then went to all the others. Interest rate swap agreements certainly started at one bank and were then taken up by the others, because people in those banks felt they had to compete with the other swindlers down the road.
	These people—this collection of money launderers, gun runners, drug money launderers, people who swindle small businesses and people who lose billions in their normal day-to-day business—are still paying themselves huge amounts of money. I know that the Prime Minister has a difficulty with facts, but I did not realise that he had a problem with adjectives, because when the Royal Bank of Scotland announced that it was paying £600 million in bonuses this year, he commended it—this bank of losers —for its restraint. That is not my definition of restraint. “Excess” is probably a better word in the circumstances. Restraint involves cutting the benefits of poor people and the pensions of the police, the nurses and the teachers. Restraint involves capping the pay of public employees. They have certainly been losing out. In 2009, I said that the two banks that were being semi-nationalised should have the normal public sector pay policies applied to them, and I think most people in this country would agree with that.

Kelvin Hopkins: I am greatly enjoying my right hon. Friend’s speech, and I agree with every word of it. Does he not find it interesting that Lord Lawson has recently suggested that the Royal Bank of Scotland should be brought completely into public ownership? That would involve only a small amount of money, and we would then have a bank that was publicly accountable and responsible.

Frank Dobson: I entirely agree with that. I also agree with my hon. Friend the Member for Bassetlaw that it would be good to see the Halifax building society separated out from Lloyds HBOS, so that what was the country’s leading firm could be relocated and its decisions could once again be made in Halifax, rather than in the City of London.
	Let us remember that while the people who are nursing the sick and carrying out operations in hospitals, the people who are teaching our children, the people who are policing our streets and the people who are risking their lives to fight fires are being restricted, HSBC is paying 204 people more than £1 million a year, Barclays is paying 428 people more than £1 million a year and RBS is paying 95 people more than £1 million a year. They are being paid those sums to play with other people’s money. That is all they are doing; if they lose but cannot go broke, they are clearly not playing with their own money. But not everyone at Barclays is getting £1 million a year; 100,000 people working for that bank are paid at a level that entitles them to child tax credit. What is more, it is people such as them all around the country who have been losing their jobs while that collection of losers at the top carry on.
	Then we have the Prime Minister and the Chancellor, whose top priority in Europe is to prevent those horrible Europeans from imposing a limit on bankers’ bonuses. We used to be told that if we imposed such limits, the bankers would go elsewhere. We were told that they would go to Switzerland. Well, they will not be doing that since the referendum in that country, because they would now be worse off there than they would be here. Would they perhaps go to the United States? Some of them would have to think very carefully about that, because money launderers can be locked up over there, and that has indeed happened, even to Brits.
	What all this boils down to is that the banking industry does not need mild tinkering; it needs a total worldwide transformation. Instead of acting as the back marker in the convoy, we ought to be out there banging a drum and getting a grip on the world banking industry, for the benefit of ordinary people in virtually every part of the world.

Mark Field: I shall endeavour not to stray quite so far from the Financial Services (Banking Reform) Bill as the right hon. Member for Holborn and St Pancras (Frank Dobson) has just done.
	No one could accuse the Treasury or the coalition of rushing into banking reform; nor, to their credit, has there been anything other than the most comprehensive consultation with—and without—the banking industry here in the UK. I shall not repeat the timeline that other hon. Members have referred to, save to say that I accept the concern expressed by my hon. Friend the Member for Chichester (Mr Tyrie) that the Bill will not be considered directly in tandem with the report of the Parliamentary Commission on Banking Standards.
	Above all, we all need to face up to our complacency. The conventional wisdom of the day, to which I fully signed up in the first half of the last decade, was that financial services would thrive best with light-touch regulation. What a difference half a decade makes! It was also during that period that the present Chancellor fatefully nailed his colours to the mast. Despite clear evidence that we were collectively living well beyond our means during the previous Administration, and amidst growing public and private debt, he decided to stick to the outgoing Labour Government’s spending plans and characterise our fiscal aspiration as “sharing the proceeds of growth.” I regret the fact that as a result, when the
	crisis hit home, my party was unable to make the orthodox Conservative case that the seeds of that financial destruction had been profligacy and the leverage that was referred to earlier. Instead, the established view was, and continues to be, that regulatory failings—of which there were undisputedly many—and reckless actions by the bankers were the primary, if not the sole, cause of the financial calamity. Hence the persistent demand for more extensive and punitive regulation of the banks, and the constant chatter of hostility towards bankers and all that they do.
	My contention remains that the core issue that we need to tackle is global imbalances, many of which are still worryingly in place after a half decade of near stagnation economically. Alongside this, a generation of Britons—as well as Americans and continental Europeans—have lived and continue to live miles beyond their individual and collective means. We are still mortgaging the future of our children and grandchildren.
	The Chancellor’s recent declaration that any UK bank failing to adhere to the Vickers safety regime would run the risk of being broken up was an understandably uncompromising response to the Treasury Committee’s demand for an electrified ring fence. Similarly, few could criticise the populist insistence that RBS would have to fund LIBOR—and, presumably, other future mis-selling—penalties from senior executive bonus pools. At a stroke, however, the Treasury has inadvertently imposed a permanent impairment on the value of the UK Government’s still huge stakes in the banking business. Our £66 billion investment in RBS and Lloyds is currently worth two thirds of what we paid for it. Nothing in the Bill will bring forward the date on which we, as taxpayers, will be compensated.
	It is often claimed that the banking lobby, here and on Wall street, has used its considerable muscle to water down, undermine or even cast aside moves by politicians and public interest groups to rein in the banking system. Several Members have mentioned that tonight. Ironically, much of the criticism comes from the self-same media outlets that have placed intense pressure on elite politicians to dismantle the proposals for their own industry, as set out in the Leveson report. As a matter of fact, the banks have taken much of what has been proposed on the chin. Many have privately expressed great concern to me about the wisdom and practical application of ring-fencing, but they feel that they have no choice but to accept Vickers virtually in its entirety.
	Ironically, existing financial services players could reap the unanticipated benefit that comes from erecting ever more onerous barriers to entry for potential new banks. Sadly, as the hon. Member for Wirral South (Alison McGovern) suggested, the zest of competition has been largely ignored in an effort to make banking safe and to punish banks for their past wrongdoing.
	The City of London’s size and global reach continues to make the UK economy especially vulnerable to turbulence in the financial markets. The centrepiece of the Bill’s reforms—the plan to ring-fence domiciled banks’ retail arms from their investment ones—is based on the notion that the less risky retail operations require protection from the so-called casino excesses of investment banking. The aim to reduce the burden on the British taxpayer in the event of banking failure is, of course, a
	laudable one. Many in the financial fraternity are simply glad that the reforms fell short of a return to a full-blown plan along the lines of Glass-Steagall, to which my right hon. Friend the Member for Louth and Horncastle (Sir Peter Tapsell) referred. That was the US legislation that separated commercial and investment banking for almost seven decades until 1999. In addition, the big banks will now need to raise capital and loans equivalent to 20% of the part of their balance sheet for which UK taxpayers would be liable in a crisis.
	The coalition Government were swift to accept the Vickers recommendations almost without reservation, giving British banks until 2019 to install their ring fence. However, I fear that the question of the separation of banks’ retail and investment arms has still not been successfully settled here in the UK. Fears have been raised that the Vickers reforms will tie up billions of pounds in additional capital and impose on banks a requirement to overhaul compliance and corporate affairs—a burden that will, I am afraid, have to be met by our constituents, the general public, in higher interest rates and in the sharply reduced amounts that banks are willing to lend.
	One of the causes of this paralysing uncertainty that has enveloped the UK’s big banks is the mixed messages coming from the Treasury on the one hand and the central bank on the other over the dual requirements to recapitalise, and thus reduce the risks of future taxpayer bail-outs, while also being ready to lend to credit-starved UK plc as if it were 2006 or 2007 all over again.
	Meanwhile, at EU level, the Liikanen report has recommended to the European Commission a similar, Vickers-style ring-fencing of retail banking from investment banking. This has given a small crumb of comfort that the UK might not be going down this path alone. However, I fear that the Liikanen proposals are sufficiently different from the Vickers proposals to heap further uncertainty on financial services here in the City.
	Since there is likely to be precious little consensus between the EU, the UK and the US authorities any time soon as to whether the structure of banking is best under Liikanen, Vickers or indeed Volcker, how should banks realistically now prepare? Once again, I fear that the cost of all that uncertainty will be borne by the consumer and the wider economy, not to mention heavy job losses throughout the financial services industry. In this regard, it is important to nail the understandable public misconception, also heard here tonight, that it has been “business as usual” in the City since 2008. It would be fair to say that particularly over the past two years, volumes of business have collapsed, state financial support has been largely withdrawn and there has been and will continue to be a huge jobs cull. If we couple that with falling salaries and bonuses for the vast majority of workers, it means bad news all round, as Treasury receipts from financial services have plunged to what I suspect will be a new norm for the future.
	Aside from the issue of commercial uncertainty, there are, I believe, question marks over whether the ring fence will actually work. The Bill’s template is based on a somewhat simplistic and outdated division between what amounts to wholesale and retail banking. There are numerous transmission mechanisms between the two that make a hard-and-fast split between high street and casino investment banking very difficult to achieve.
	Historically, the City of London has repeatedly benefited from arbitrage with Wall street, from the withholding tax under President Kennedy over 50 years ago, which precipitated the creation of the eurodollar and eurobond markets, right through to the “big bang” in the mid-1980s and the effects of Sarbanes-Oxley in 2002 in the aftermath of the Enron and WorldCom collapses. If the UK is to prevent its competitors from benefiting from unilateral action along the lines set out by Vickers, it must continue to press for international agreement on the future landscape of the financial services world.
	There is, in my view, a danger that the UK and EU regulators will somehow look at the Bill’s ring-fencing as a panacea, and will sell it as such to the general public. Instead, in light of the pitfalls of the ring-fence options, it might prove more effective to look at an alternative dual system when it comes to ordinary deposit accounts. This would allow those who desire a risk-free place to store their money to place it in savings banks, while those happier to take a risk—unprotected, of course, by any Government guarantee—could have an account with a fractional reserve bank, as used to be the case in the UK until the mid-1980s.
	Tighter regulation, newfangled restrictions and imploring banks to behave ethically as set out in this Bill and future legislation will no doubt do little to restore the City’s reputation for integrity. I fear that the spate of mis-selling scandals still has a hell of a long way to run, especially as, in fairness, 20:20 hindsight now deems that almost any novel financial product created and marketed by our banks since 2000 will be regarded as being mis-sold against consumers’ interests.

Andrew Love: If I may characterise the hon. Gentleman’s argument, it seems to be that a race to the bottom in terms of regulatory cover will be to the advantage of the City of London. Many, however, including the witnesses who gave evidence to the parliamentary commission, have said that there should be a race to the top to provide safety and security, which will attract investors to London. Why does he not accept that argument?

Mark Field: I am afraid that the hon. Gentleman has mischaracterised what I was trying to say. What I would say is this: we do not know—we cannot be sure, so it is better to approach the problem by trying to organise international agreements rather than by “a race to the bottom”, as he puts it. I do not believe that either. Much of the evidence taken by the parliamentary commission has played an important part in ongoing thoughts about the whole landscape of international financial services for the future. It is wrong to mischaracterise what I said, but there are risks and, given the importance of the financial services industry, whether we like it or not, we need to ensure that we go into this with our eyes fully open.
	If Governments of any political colour continue to take ultimate responsibility when consumers purchase products from our banks, a whole set of unhealthy and perverse incentives will continue to plague our financial services industry. It is imperative to remember that regulation is often the sworn enemy of competition—one of the other avowed goals in the Bill. Public confidence and ethical foundations will slowly and surely be restored in financial services only when the landscape becomes
	far more competitive. That means, in my view—whether we like it or not—that consumers of financial products need to take a far greater level of responsibility. No amount of banking reform or new regulation will otherwise create the conditions for free-flowing capital to build the successful businesses of the future, let alone restore the reputation of our nation’s most important invisible export, which is and remains financial and business services.

Michael Meacher: We have had an interesting and thoughtful debate, which has concentrated on detail, but I think it is worth putting it into context. Despite the banks triggering, as we all know, the biggest economic crisis since the 1930s, with the Government having to provide nearly £1 trillion in loans, guarantees and asset protection schemes to ailing banks, it has taken five years to reach this point of proposing reform—and even then, by any standards, this Bill is woefully short of what is urgently needed to prevent a recurrence of financial collapse and to produce a safe and desirable finance sector. I have a lot of sympathy with my hon. Friend the Member for Bassetlaw (John Mann) when he said, “Is this it?”
	First, the Bill’s central mechanism—ring-fencing between the investment and retail arms of the banks—is all too likely to be subverted by the Machiavellian skills of the City in regulatory arbitrage. The Minister mentioned that, but rather slithered over it, I thought, by saying that he had confidence that it would work. The only evidence he quoted in favour of that was the opinion of Sir John Vickers. Since it was his proposal, it is not surprising that he believes it will work. Historically, however, all the evidence is that Chinese walls will be circumvented.
	Let me deal with the Parliamentary Commission on Banking Standards. One has to ask, as has been asked a number of times already in this debate, why after five years of delay this Bill is being rushed through just a few months before the Government’s own appointed commission actually reports? The Tyrie banking commission has made it very clear that it strongly advocates electrification of the ring fence. The Chancellor initially rejected that until the commission’s chair, the highly respected hon. Member for Chichester (Mr Tyrie), and Lord Lawson threatened to table amendments to force the Chancellor’s hand to ensure that the full sanction of separation remained in the Bill. Finding his hand forced, the Chancellor then made the absolute minimum concession he could get away with, namely giving regulators the power to dismantle an individual bank that tried to undermine the ring fence, but not a more general power to apply full separation across the industry. Even after that, dubiety remains because the Bill does not say what precisely is to be ring-fenced. Savings, for example, can certainly be placed in a variety of exotic securities.
	The Government have also succumbed to the banking lobby in permitting banks to locate simple derivative products within their retail operations. As my hon. Friend the Member for Nottingham East (Chris Leslie) pointed out, that can be, and indeed already has been, uncomfortably extended. The Government’s retreat can only have the effect of opening the door to other forms of speculative activity to nest inside retail banking.
	There are other uncertainties. Let me give just one example. Let us suppose that funds are transferred from a ring-fenced to a non-ring-fenced entity via a foreign subsidiary or affiliate in a place where there is no such separation. Is that a breach of the ring fence? How does anyone actually know? I presume that we will not rely on the good intentions of bankers.
	The real problem with the Bill, however, is that it does not deal with the fundamental causes underlying the reckless and destructive banking that has done so much damage. It is preoccupied with investment banking, and it offers no relief from those suffering from the abuses in retail banking. As many people have mentioned, payment protection insurance, money-laundering, the fixing of endowment mortgages and interest rates, and pension mis-selling are just some of the rackets that have been run by retail banking. Nothing in the Bill offers any reform.
	Many of those abuses, on not only the investment but the retail side, are fuelled by the incessant stock market demands for higher short-term returns, as well as the profit-related pay of executives and traders. Even when the European Union tried to limit the latter by means of bonus caps, the Chancellor went out of his way to stop it without managing to secure a single ally in any of the other 26 member states. I can only say that the banks certainly do not provide half the annual donations to the Tory party without expecting a very big return.
	However, even more important than the ring fence and the ambiguities relating to the status of so-called simple derivatives, which are anything but simple—for example, there is the obvious question of whether currency hedges can be sold to small businesses from within the ring-fenced operations—is the leverage ratio. As has been mentioned, the Vickers recommendation was for capital of 4% with a lending ratio of 25:1. The Chancellor, in yet another very big concession to the banks, dropped that to 3%, opening up a 33:1 ratio. In its interim report published today, the Tyrie commission—rightly, in my view—rejected that as being wrong-headed and unnecessarily risky, precisely because of the excessive size of the finance sector in our economy, relative to the size of those in other economies and, indeed, absolutely. I think that that unwise concession ought to be overturned in both Houses.
	This is not, I think, a great Clark-Javid Bill. It is a mini-Bill which, unforgivably in my view, entirely ignores the wider banking framework. The big four—and this, surely, is the background to the Bill—have let Britain down badly. We need to transform the whole banking culture, and end its present obsession with property, overseas speculation, offshoring and tax avoidance. By being too big to fail, the big four exacerbate moral hazard; because of their size and weight they choke competition and new entrants to the market; and they have manifestly failed to keep adequate funding flowing to business. They should be broken up, initially by a clean break between the investment and retail sides—on the basis of all the historical evidence, I think that a ring fence is highly unlikely to work—and beyond that by a wider restructuring.
	What the country really needs is a national investment bank supported by a range of smaller specialist banks, focusing on infrastructure development, science and
	technology, small and medium-sized enterprises and a low-carbon economy—to mention only some—together with a regional spread of banks along the lines of the German Mittelstand. The other essential requirement is the regaining of public supervision of the money supply. As the Minister mentioned in his opening speech, the total gross lending of the banking sector has been about £7 trillion a year, five times as much as GDP. What the Minister did not say, however, is that only about 8% of that has gone towards productive investment. The banks have used their virtual monopoly over domestic credit creation—amounting to some 97%—largely to fuel successive property booms and speculative foreign ventures. That is a basic reason for the fact that the country now has a fast-rising and unsustainable deficit in traded goods, which last year amounted to more than £100 billion —7% of GDP.

Steven Baker: The right hon. Gentleman has raised a point that many people fail to appreciate: the banks lend money into existence and into housing, partly because they are encouraged to do so by the risk weightings in Basel. Does he agree that, at least in that respect, the money supply tripled because regulators encouraged banks to do it?

Michael Meacher: I do agree, and I know that the hon. Gentleman believes that banks have far too much power to create money out of nothing. He and I may not agree on exactly how that can be dealt with, but it certainly needs to be dealt with.

Frank Dobson: Does my right hon. Friend agree that one of the characteristics of our banking system is that the banks have invested more money in fancy offices in the City for themselves than in British manufacturing industry?

Michael Meacher: That is also true. My right hon. Friend listed some of the huge abuses that have been turned to the private benefit of the bankers and the people at the top, and that is another example.
	Our balance of payments problem cannot be allowed to continue. That is integral to our future. If Britain is to achieve what we all want—a long-term recovery with stable growth and full employment—we need a lending system that prioritises manufacturing, construction and export promotion, and allocates credit in accordance with the national interest rather than the private interest of banking executives and traders. The Bill is concerned almost exclusively with limited regulation. All the historical evidence suggests that it is likely to be highly ineffective even on that score, but its real fault is that it does not even address the central issue in the financial sector, which is immensely important and crucial to Britain’s survival. This is a feeble Bill, and the next Government will have to introduce a proper Bill to achieve the necessary regulation.

Steven Baker: One man has done more than any other to popularise the cause of banking reform. Astonishingly, he is not a member of the Government or a Member of the House of Commons; he is, incredibly, a minibus salesman in Burnley named Dave Fishwick.
	On these occasions I generally stand up and say something arcane, usually referring to literature from the 1930s, but today it is my pleasure to talk about the Channel 4 documentary “Bank of Dave”. Of course, Mr Fishwick has not been allowed to start a bank; he has had to start a savings and loans company. The documentary reveals just how difficult it is today to start a tiny little bank. But what does he do? He knows his depositors—his savers—and his borrowers; he goes out and personally shakes hands; and he understands the businesses into which he is lending. In the documentary, we can see what tiny sums are necessary to allow a small business to grow—just a few thousand pounds to buy a new oven. Yet he puts his own personal assets at risk to guarantee what he does. He knows his depositors and he wants to make sure they get their money back, so all the savings he accepts are underwritten out of his personal wealth. If you read his book, Mr Deputy Speaker, you will discover that he believes in 100% backing for demand deposits and would do so were he allowed to start a bank.
	This is an incredible thing, because Dave Fishwick, working on little other than his basic entrepreneurial ability—his street-level ability to get business done—has come up with a model of banking that has overwhelming public support and that demonstrably can be seen to be serving those in his local community, be they savers or borrowers, those working in business or the elderly who cannot afford to lose their money. In addition, all this service to the community is personally underwritten by him. I have introduced a number of Bills in this House, one of which was the Financial Institutions (Reform) Bill. It would have made bank directors liable without limit for their commercial losses and put bank bonuses into a pool to be treated as capital for five years. That would realign incentives so that those operating banks would take sensible decisions, cease to be reckless, lend well and think about what they were doing for their customers. We are in the absurd situation where a simple, unsophisticated man running a corner shop in my constituency was subjected to a bank calling him—a bank that had specifically procured an Urdu speaker in order to obtain his trust—to sell him a sophisticated interest rate swap that he did not need. This is a bank that has been bailed out at taxpayer expense but is now paying bonuses. So we have that injustice, yet a man such as David Fishwick, who is doing the right thing and underwriting the commercial risk at his own expense, is not allowed to call himself a bank—it is disgraceful.
	This Bill should help a man such as David Fishwick to serve his community by setting up a tiny bank. Three things about his approach make it feasible. The first is his personal guarantee. The second is his personal relationship with his customers. The third is that if he were to take demand deposits, he would put a 100% reserve on them. If that were also capped at a certain level of lending, it would be possible for that bank to exist as a bank with very little regulation. That business man, who just knows how to get good honest business done, would be able to get on and serve his community. That approach would answer so many of the points made in this debate.
	Of course I cannot resist addressing the rest of the Bill’s provisions and some of the more arcane points, which I like so much to talk about.

Frank Dobson: The hon. Gentleman is fairly youthful, so he may not remember the time when most big banks had local bank managers and so had some of the characteristics of the Bank of Dave, in that there was someone local who knew the locality and its businesses. Many people now find that they apply to the bank and the algorithm says no.

Steven Baker: My bank manager is named Guy Birkby, and I am sure that he would not wish to be compared to Dave Fishwick because he is an employee of Handelsbanken. I moved my money to Handelsbanken specifically so that I could have a local bank manager who knows me. Indeed, when I ring the bank people recognise my voice and off we go, and that is a far better way to do business. This particular combination of personal relationship and personal liability—in Dave’s case, not Handelsbanken’s—is a way to re-establish trust. What are the other ways of doing that? They are unlimited liability, which I have discussed, trustee savings banks and mutuals. I am afraid that one of the big flaws of the big bang was that it encouraged this limited liability corporate form where nobody ends up taking the risk and it falls to the taxpayer—it is a disaster.
	On ring-fencing, I very much share the comments made by the Father of the House, my right hon. Friend the Member for Louth and Horncastle (Sir Peter Tapsell). I am extremely sceptical that ring-fencing will work. I think that the efforts in the Bill are extremely brave, and of course I shall support it, but this is the last brave attempt to prop up the contemporary monetary orthodoxy. I shall come back to that subject after talking about depositor preference. When we combine the ring fence with the particular instance of taxpayer-funded compensation, there is a real problem that the same old incentives are being preserved. Commercial risk is being subsidised by the taxpayer and to deal with the consequences of having encouraged that reckless behaviour at taxpayer expense an attempt will then be made to regulate those risks away—it has not worked before and it will not work now.
	On depositor preference, I have learnt through my last five or six years of working with academic economics that if there is one subject we cannot resolve it is who owns—or should own—the money in someone’s bank account and what the contractual obligations should be. In other words, if someone’s money is on demand and they can have it back any time, should there be a 100% reserve—it is their property and the bank is safekeeping it—or should it be the bank’s property which it can use to fund itself?
	That question is extremely difficult to resolve, but I shall just cite a speech I have used before, in which the Earl of Caithness said:
	“The current crisis, like previous ones, emanated from a base of judicial decisions. Prior to 1811, title to the money in depositors’ accounts belonged to the depositor. However, in that year, decisions in Carr v Carr and, in 1848, Foley v Hill gave legal status to the banking practice of removing depositors’ money from their accounts and lending it to others. Since then, title to depositors’ money has transferred from the depositor to the bank at the moment when the deposit is made.”—[Official Report, House of Lords, 5 February 2009; Vol. 707, c. 774-75.]
	That goes very much to the point about the money creation process on which the right hon. Member for Oldham West and Royton (Mr Meacher) and I had an exchange. There was a time when this fractional reserve
	process created money, but that has now become meaningless, as banks are able to lend with almost no restraint. As I explained in my maiden speech, that is the fundamental reason for this massive boom-bust cycle.
	I try never to have an idea of my own on these matters, so let me come back to what Irving Fisher wrote in 1935, when he brought forward a plan for 100% money. He said:
	“The essence of the 100% plan is to make money independent of loans; that is, to divorce the process of creating and destroying money from the business of banking. A purely incidental result would be to make banking safer and more profitable; but by far the most important result would be the prevention of great booms and depressions by ending the chronic inflations and deflations which have ever been the curse of mankind and which have sprung largely from banking.”
	So I return to David Fishwick, because he knows instinctively, as a business man, that if he takes somebody’s money on demand deposit he should 100% reserve it, in case they want it back.
	By this point, I will have upset my friend Professor Kevin Dowd, who was a tutor to Andy Haldane at the Bank of England. I have had the privilege of meeting both of them to discuss these matters. Kevin is a free banker—he would believe in fractional reserves on demand deposits, without a shadow—but in his banking system there would be no limited liability and no taxpayer-funded deposit insurance, banks would issue their own notes and money, at bottom, would be gold. That commodity backing would limit the banks’ ability to create deposits.
	There is also a problem in our banking system with accounting, which is another area where I have introduced a Bill. Since I did so, significant progress has, thank goodness, been made on one aspect—loan loss provisioning, which Members can refer to in the media. However, there is another problem with international financial reporting standards accounting for banks, which is mark-to-market accounting. We have heard today the story of how banks have securitised lending and sold it. In a chronically inflationary banking system where banks lent money into existence and, as we heard from another hon. Member, were encouraged to make bad loans—they were creating money to make bad loans into property—they of course wanted to get this off their books. So they wrapped it up in a bond, insured it with a derivative and sold it. They did not even have to sell it. They just took this instrument, moved it from one accounting book to another and they could then immediately mark its value to market. What does that mean in plain terms? It means that one can take 30 years of cash flows, unrealised, from mortgages not yet paid, and by marking them to market within a bond, around a vehicle that is all these mortgages securitised, one can take bad loans—loans that probably will not be repaid—and take it all as profit in capital today. You can pay yourself a massive bonus out of cash not realised—out of capital.
	If hon. Members and the Minister wish to know more about how this works, I hope that they will look at my colleague Gordon Kerr’s book, “The Law of Opposites: Illusory profits in the financial sector”. Gordon has spent many years engineering financial products. In a sense, he is a dissident banker gone good. In that book, he explains how those accounting problems, combined with easy money, create so many of the problems that are, as Fisher said, the curse of mankind today.
	At bottom, there will ultimately turn out to be two banking reforms that we should adopt. As I have said before—this is particularly the case for the question of the status of demand deposits, gold as the ultimate backing to money and so on—we will find in the end that the Bill is an honourable and brave attempt to prop up a contemporary monetary orthodoxy that is failing. This is the end of the post-Bretton Woods monetary order through which we have been living. We were told that it was a banking crisis. We learned a little later that it was a debt crisis. In a minute, people will realise that what we use as money is debt, that what the banks deal in is debt and that the vast majority of the money in our accounts was created by somebody else taking a loan. When that is accepted, we will discover that this is a monetary crisis. We will then find that there are two plausible ways to reform money and banking.
	We could have 100% reserves on demand deposits and the preservation of state control over money and banking—that is, paper money, fiat money, the central banks planning interest rates, taxpayer backing and so on. That is the sort of plan advocated by my friend Jesús Huerta de Soto as a route to what we really should do, which is get the state out of money and banking. We should have a free banking system, as proposed by my friend Professor Kevin Dowd. He has brought forward a plan called “two days, two weeks, two months”, which would return us to a free banking system backed by gold within that time scale. It would not need regulation and it would be just and moral because people would take responsibility for the things they did.
	This is not the first time that a monetary order has come to an end. By some calculations, in the 20th century there were about eight global monetary orders. The thing that is remarkable about the post-Bretton Woods order is not that it is ending but that it has lasted so long. I am afraid that I agree that this Bill is not enough, but it makes some progress and I hope that it will be the last attempt to prop up a contemporary banking system that cannot last.

Kelvin Hopkins: That was a fascinating speech by my good friend the hon. Member for Wycombe (Steve Baker). I cannot compete with his erudition; I have a much smaller speech on a smaller issue.
	In 1983, I stood for Parliament on a manifesto that called for the public ownership of large sections of the banking system. It is an irony that large sections of it are now in public ownership, having been put there by people who profoundly disagree with and disbelieve in that process, but who were forced to do so or to let the system collapse. That is interesting. I certainly wish to see public ownership go further, as well as public regulation and accountability, as the risk in banking is being underwritten not by the borrowers but by the Government, by the state and by the citizen, and if risk is not and cannot be transferred, the ownership and accountability should be in public hands as well.
	During the Minister’s opening speech, I mentioned audit and the appalling failures of the audit industry during the banking crisis. The hon. Member for Chichester (Mr Tyrie) said that more needs to be done, and much more certainly needs to be done. I hope that some component of the Bill, when it is amended, might deal with audit.
	There is a need for radical reform of the rules governing audit. The Financial Reporting Council is undertaking a consultation on the new rules that will compel auditors to write what is called a commentary, flagging problems, risks or disagreements with management at audited companies and institutions in clear and comprehensible language so that shareholders can understand. That will be seen as controversial by company management, but will be welcomed by shareholders and, by the same token, by bank depositors and customers.
	We should of course remind ourselves that auditors, above all, represent shareholders—or at least they should. In reality, however, they are taken on by managers so power is effectively in the hands of managers and shareholders, or bank depositors, and customers simply have to trust them. When an audit contract comes to an end, auditors are unlikely to be critical of managers for fear of failing to be re-engaged. The inevitable cosy relationship between auditors and managers lies at the heart of what has gone wrong in the banking sector.
	If auditors had been doing their job properly and their audit reports had not been so opaque and impenetrable, the financial crisis would not have happened as it did. The fact that banks were gambling with worthless bits of paper based on sub-prime mortgages was the fundamental cause of the banking crisis, and it is not over yet. Auditors did not do their job in relation to the practice of bankers such as those at Northern Rock before and until it collapsed. If they had, we might have prevented that catastrophe.

Frank Dobson: Does my hon. Friend agree that it is a trifle irksome to listen to the radio or watch television and to hear someone from PricewaterhouseCoopers telling us what we ought to do for the future when PricewaterhouseCoopers audited Northern Rock and did not spot anything going wrong, or to hear about the famous Ernst and Young ITEM Club when the biggest item in the firm’s history is that it did not spot that Lehman Brothers were broke?

Kelvin Hopkins: I thank my right hon. Friend for that intervention, and I am just about to mention those great companies.
	As if to reinforce the case for radical reform, on 22 February the Competition Commission published a report that was deeply critical of PricewaterhouseCoopers, Ernst and Young, Deloitte and KPMG—the big four—for a deep “misalignment” with shareholder interests. The commission made it clear that auditors and company executives had acted as a cabal to their mutual benefit and to the exclusion of the interests of investors. Under the definition of investors, we can include depositors and retail customers in the banking sector.
	The commission concluded that the relationship between auditors and management has been too cosy and must be overhauled. The big four audit nearly 90% of all blue chip companies. One suggested remedy has been for the mandatory rotation of tendering so that after, for example, five years or so an audit company would have to relocate to other companies and could not be re-engaged. The companies engaging auditors would then be required to ask new auditors to compete for business. That would go some way towards breaking the unhealthy link between auditors and the companies they are supposed to be auditing.
	Whatever new rules might be introduced, it is vital that auditors are compelled to ensure that their loyalties are to shareholders, depositors and customers and not to banking and company managers. Auditors failed to raise the alarm before the financial crisis and that must never happen again.

John Stevenson: People talk about banking being a very dry subject, but this has been an interesting debate with different views and varying opinions that I have found enjoyable to listen to. I hope I can make a small contribution.
	Historically and, indeed, even now financial services and the City have been, and are, a vital part of the UK economy. London in particular and the financial industry in general have made a massive contribution to the prosperity of this country.
	London is recognised as one of the, if not the, pre-eminent financial centres in the world. London is a world city, partly because of its location, our language and our legal system, but also because of the financial industry. In our system, there is huge expertise and skill and many successful companies and businesses, not just banks, have their headquarters in England. It is a city that we should be proud of and a financial capital that we should not underestimate.
	Through the financial sector and its successes, we have the most precious commodity of all—jobs, and not just in London but up and down the country. There are financial services in my constituency, Carlisle. It is skilled employment that is often well paid and it creates wealth and prosperity for many that goes beyond the financial industry into other aspects of our economy, such as law, accountancy and consultancy as well as other support industries, creating many jobs in the wider economy.
	There is also taxation. We should not underestimate the substantial contribution to the public purse made by the financial sector. We might bash bankers, but taxes pay for public services and a high proportion of the tax take in this country comes from the sector. Bonuses are taxed, profits are taxed and those taxes go towards our public services. They make a positive contribution. The balance of trade supports our economy year in, year out. We would probably have a real crisis were it not for the invisibles that earn us considerable sums, compared with the manufacturing sector.
	If this debate were taking place in 2007, we would probably be saying that everything in the garden is rosy and we would believe that nothing needs to change, but we know how different the situation has become. Banks became arrogant and thought they were invincible, Government became complacent—“No more boom and bust”—and where were regulators? It was a lethal combination and we all know what happened. In 2008 there was a failure of policy and regulation on a huge scale. Since 2008 we have been dealing with the fall-out of the previous Government’s failures. Arguably it is this problem, the banking problem, that is still holding back recovery. Since the bail-out there has been much discussion of what direction Government and our country should take in managing and regulating our banks and the banking sector.
	We have various choices. We could do nothing and allow banks gradually to recover, carry on as they did before and hope that the banking crisis never happens
	again. Alternatively, we could split the banks completely—split retail from investment—and create a clear, absolute divide. We could help change the sector completely by creating smaller banks and more of them, in effect creating a banking sector where banks are small enough to fail. Finally, we could pursue the middle way, which is in effect what the Government propose. All these options could be equally correct. They may be different solutions to the same issue, but who knows if one of them might be more successful than the others? However, there appears to be broad consensus that there should be some form of divide within banking services. I therefore support the Government’s proposals as they have a certain degree of flexibility within them, allowing for changing circumstances.
	We all acknowledge that the financial sector is critical to the success of businesses up and down the country. Central to that is the success of the banks themselves. The goal for Government must be to ensure that the country has financial stability at the heart of the banking sector. Clearly, stability must be the priority. We do not want our recent experience to be repeated, but we should not lose sight of other considerations for Government: lending to businesses and consumers, which is vital to growing our economy; choice through competition; awareness of the risks to the health of the nation’s finances; and the need to ensure stability and strength in the wider economy. I appreciate that some of these issues are not relevant to the Bill and do not require legislation. Nevertheless, it is important that the Government do not lose sight of the other aspects that support a strong and vibrant economy.
	The Government clearly take the issue of banking stability very seriously, and so they should. We have had the Vickers report, the Parliamentary Commission on Banking Standards and the Government’s response to them. We now have the Bill before us. The issue for the House is whether it will achieve the Government’s aims and objectives, and whether those are the right solutions. In general, I support the direction of travel and the thrust of the Government’s aims. The concern, as ever, is the detail. The Bill is a skeleton. Much flesh still needs to be put on the bones. There is clear provision in the Bill for further orders and regulations, which the Minister touched on in his speech. I acknowledge that he will be making further amendments to the Bill and that he has indicated that he will be open-minded about amendments. That is to be welcomed, but to understand the Bill fully we need to see those orders and regulations to judge whether the effect is likely to be successful. I assume that that will be done in Committee. That was the indication that the Minister gave.
	I appreciate that those on the Treasury Committee and on the commission have a much better understanding of the issues, but I would like to touch on three aspects of the Bill. First, a number of questions arise from the provisions relating to a ring-fenced body. Which banks will be affected? What will be the de minimis level? If there are going to be only a few such banks, can we name them? As for the reserve power to split up a group structure, the proposal is not for a general industry-wide reserve power, but for a specific power. Is this potentially a nonsense if there are only a few ring-fenced banks? The same thing could be achieved by applying the
	specific reserve power to each of them. In some ways we want our banks to be small enough to fail and we want plenty of them so that they do not need to be ring-fenced.
	What of the ring-fenced institutions themselves? They may be separate legal entities, but how independent will they be? What of the boards? Who will the directors be? Will they be entitled to be on the board of the subsidiary as well as of the parent company? How independent will they be? What of the employees? Who are they responsible to? Who will key and talented employees look to as their bosses? Will it be the parent company or the ring-fenced company that they are actually working for? They will obviously be considering their careers, and that could have an impact on their judgment.
	What about the systems of the ring-fenced institutions—the computers, the customer information? How separate will these be from the parent company’s or those of the other institutions within the group? What about management? Will it be totally separate? It could be argued that even the buildings would have to be separated. Who has access to information and decision making? Human resources, systems and management issues need to be addressed to ensure that the whole structure of the proposals will work.
	With reference to core services, the proposed primary legislation deals only with deposits. Is that it? What other services may be included or specifically excluded? I appreciate the need for flexibility, but we still need to have a clearer idea of the proposals or at least of the Government’s thinking. On the core activity, the acceptance of deposits, what about small and medium-sized enterprises and high net worth clients? What is the definition of an SME or of a high net worth client? That could mean different things to different banks and to different people. There are still many issues that need to be addressed so that we have a better understanding of what we are being asked to support and to ensure that we pass legislation that will work.
	We all want to see a strong, stable and successful financial sector. Within that we want a robust and competitive banking industry, which is itself stable but able to finance and support the wider economy. Although I support the Government’s intentions in the Bill, I encourage the Government always to remember that a competitive market with low barriers to entry and sensible regulation robustly applied should always be at the centre of a successful banking and financial sector. That should be our goal and it should certainly be the goal of the Bill.

William Bain: The Bill matters greatly to my constituents in Glasgow because the financial services sector north of the border contributes nearly 8% towards Scotland’s GDP, which is the second highest in the UK after London, and 8.6% of jobs in Scotland are in the financial services sector. The Bill will affect a large number of savers, businesses and employees in Scotland.
	I have to say, with regret more than anything else, that the Bill is desperately weak and disappointing and it will need substantial amendment in Committee if it is to provide the radical surgery that the banking and economic system needs. The truth is that our banking system is badly broken. It is failing to supply or boost demand for lending to businesses in key parts of the
	economy. As the Institute for Public Policy Research found in December, the remuneration packages within the industry have been responsible for a huge rise in inequality across our country.
	It is disappointing that we have not had a commitment from the Government to introduce a proper financial transactions tax and that they have not shown leadership by pressing for that to be introduced at G20 level, given that we already have such a tax in this country in the form of the stamp duty that is paid on share transactions.

Steven Baker: Between 1997 and 2010, the broad measure of the money supply, M4, tripled. That new money had to go to somebody first. That meant that it widened wealth inequality. The hon. Gentleman is arguing that because the state encouraged this enormously elastic money supply and created wealth inequality, we now need more state intervention to try to fix it. That would be a disaster.

William Bain: I know that the Prime Minister has been very much a fan of a magic money tree. The Chancellor, by refusing to change course on fiscal policy and putting everything on to monetary policy, shows that the policy of the Government is to treat the Bank of England almost as if it were a magic money tree, so I am not sure of the point that the hon. Gentleman is making.
	There is very little in the Bill on competition. There is nothing that would impose a fiduciary duty on the banks in relation to their clients’ money in the same way that company directors have in relation to company funds or lawyers in relation to clients’ funds, so there are huge deficiencies. There is also the great suspicion that the Bill waters down some of the key recommendations of the Vickers report. The maximum leverage that the Chancellor is prepared to accept is way beyond the Vickers recommendation. The Chancellor appears to be prepared to allow a leverage of 33 times, whereas Vickers’ recommendation was for only 25 times. That is because instead of adopting the Vickers report on the level of equity capital at 4% of assets, the Chancellor is going for the Basel III recommendations.
	As I said, the IPPR, in a report published in December, examined the culture of greed and how the remuneration system got out of control in the banking system. For example, the top 0.5%, or even the top 0.1%, enormously enriched themselves because of the practices in the industry. That is one reason why it is regrettable that the Bill does not contain provisions for a banking code of conduct or to put ordinary employees of the banks on remuneration committees to ensure that there are annual binding shareholder votes on executive pay. Neither does it propose properly to enforce the legislation passed by the last Government to reveal how many people in the banking system earn more than £1 million a year. There are great areas where the Bill is enormously disappointing.
	In terms of the overall reforms, we have three major issues of contention with the Bill as framed. First, too much of the detail of the Government’s policy is to be dealt with by delegated or secondary legislation and is not present in the Bill. Secondly, the Government are prepared to allow too much flexibility within the ring fence, and do not give consumers and taxpayers the assurances they deserve that the principle of too big to fail will not still exist within a regulatory system. Thirdly,
	the culture of the banking system is not changed enough by the Bill. There are insufficient steps to ensure the proper degree of lending to households and SMEs that is required.
	To take that final point first, the figures we have seen on the national loan guarantee system, Project Merlin and funding for lending have one thing in common: the Government are not matching up to their promise and the banking system is inadequate to meet the needs of households and businesses. After a net growth in lending of just £0.9 billion in the third quarter of last year, net lending through funding for lending participating banks contracted by £2.4 billion in the fourth quarter of last year. Whereas Lloyds was drawing £3 billion through funding for lending, lending by Lloyds shrank by the same amount in the final quarter of the year. Whereas RBS has drawn £750 million, it decreased its lending by £1.7 billion in the same quarter. It is clear that funding for lending, as it has been conceived and is operating, is simply not providing the lending to small and medium-sized businesses. There is a missed opportunity in the Bill to change course and ensure that the system provides the support to businesses that is necessary if we are to have the growth that is the only means of cutting the deficit.
	We also see from the bank data published last week insufficient detail on the breakdown of lending to households and businesses. However, we know that business investment fell by 1.2% in the last quarter of 2012, and it is clear that confidence in the economy is stubbornly low. There are still high levels of corporate surpluses, but the banking system is failing to deliver money to those businesses to start increasing orders, to deal with our low productivity and to restore confidence where it is most needed now.
	It is also clear that there are unfortunately no provisions to establish immediately a British investment bank that would break the logjam of getting money out of corporate surpluses and flowing into the real economy and promoting orders and demand. Why have the Government persisted with this argument, even in the light of the proposal in the second report from the parliamentary commission for a secondary reserve power to ensure that where there are examples, or even the possibility, of the primary reserve power being circumvented by the banks, there is a reserve back-up power to break up the entire system if that is necessary in the national interests and to prevent financial collapse?
	The commission’s report argued that the banking industry could indeed dilute the impact of the ring fence, and that not just the primary but the secondary reserve power was necessary in order to ensure that that did not occur and that we had proper enforcement of the ring fence. The Bill also introduces a requirement for directors of ring-fenced entities to be approved by the regulator, with such persons being subject to disciplinary action by the regulator if they have been involved in any contravention of the ring-fencing rules. It is clear that those powers should also be increased.
	The problem with the Bill is that the devil is in the detail, but a huge amount of the detail is not apparent. One reason why the Chancellor said that he could not accept the secondary reserve power is that he claimed it would be anti-democratic. He said that it would not be present on the face of the Bill and it would not be fair to introduce that by delegated legislation. The question remains for the Minister: if that is the objection, why
	not put more of the detail into the Bill? Why not ensure that we can then have that secondary reserve power, which the hon. Member for Chichester (Mr Tyrie) and the other members of the parliamentary commission deemed to be absolutely necessary to have confidence in our banking system? Then we would be able to move on in a spirit of consensus, instead of, with regret, having to point out the Bill’s great deficiencies.
	The other shortcoming of the Bill is the inconsistent treatment of derivatives. Those were described by the US investment guru, if we can call him that, Warren Buffett as financial weapons of mass destruction, but sadly the Government have yielded to some of the more regressive parts of the financial lobby and will permit banks to locate simple derivative products—whatever simple means—within their retail banking operations. They should look at that again.
	The Bill is weak and does not learn the real lessons from the financial crisis. It does not learn the lesson that we have a very small number of very large banks, whereas other countries, such as Germany, France, Canada and United States, have a more diverse range of successful financial institutions, including co-operatives, credit unions and Government savings banks. There is little in the Bill that would help to expand the thriving credit union movement. I recently visited credit unions in my constituency and others in Glasgow city centre that are providing mortgages and expanding the range of financial services in a responsible way given the scale of financial exclusion that many of our constituents face. Having different types of banks in an economy introduces different incentives and gives the public real choice. The point is not to have more banks competing on the same business model of short-term speculative profit, but to have competition across different business models with diversity of form and diversity of function.
	Unfortunately, the Government refuse to listen to those points and have taken insufficient steps to make the reforms that our country needs. I hope that in Committee they will listen to the arguments again, because our constituents, businesses and the people who save and invest in our financial system deserve no less.

John Thurso: I begin by apologising to the Chair and to Members on the Front Bench; due to the vagaries of snow at Aberdeen and the fact that the plane I was on was not de-iced on time, I missed my connection and therefore arrived to hear only the latter part of the Minister’s speech. However, judging by the tone of the debate, I think that I have a fairly good idea of what he must have said.
	The second point I would like to make at the outset relates to the staff of the Parliamentary Commission on Banking Standards. My hon. Friend the Member for Wyre Forest (Mark Garnier) made the good point that the Chair of the commission, my hon. Friend the Member for Chichester (Mr Tyrie), has done a sterling job, but we have also been extraordinary lucky in having staff of such high quality. The preface to our report lists the staff and shows the amount of resource that has been available to us. The staff who have been available to the Commission are of an extraordinarily high quality.
	We have therefore been able to produce work of an extraordinarily high quality. I say that at the beginning because, whatever my poor remarks, I very much hope that those on the Front Benches will take note of the work that has been done to date.
	I think that the next banking crash will happen some time between 2078 and 2088, with a couple of small wobbles between now and then. If one looks back to the dawn of banking, when an Italian moneylender first sought to made a buck or two, one sees that crashes have happened ever since. One of the best pieces of work I have read recently was a commission staff note setting out exactly how often crashes have taken place and the fact that they are pretty much identical. They all start with over-exuberance and an asset bubble, which is followed by a collapse, and on each occasion, going back several centuries, the Bank of England has intervened and the country has had to rescue the financial system.
	The Bill sets out not to prevent those sorts of crashes from happening in future, but to try to make them survivable, in particular by making banks resolvable. If we are to have risk and reward, there will be problems in future. The Bill, and the recommendations of the parliamentary commission in relation to it, set out to try to make those situations less systemic and less of a risk to the country and the taxpayer. At this stage, the Bill is necessarily rather more about structure than it is about some of the other points that have been raised. I welcome the Bill and want to comment on one or two of the things that are not in it and to urge the Government to listen to the points that the parliamentary commission has set out in our report. When I have done that, time permitting, I would like to look at some of the wider points.
	On the question of process, it is a matter of regret that the Bill is unlikely to have sufficient time in Committee to allow the House to consider all the issues. Once again, the unreformed other place will have the duty of sorting that out. I am particularly concerned about the fact that, should the important areas of standards, culture, competition and remuneration require any action in legislation—we have yet to deliberate on whether they might—the Bill will almost certainly have passed through this House by the time the parliamentary commission completes its final work.
	Let me turn to the points that I wish to make. First, on the question of leverage, the key is risk-weighting assets. Much of the academic work has shown that, broadly, the banks that had better leverage ratios were the ones that survived. It is a very simple fact. The risk weighting of assets does not actually assist terribly much in that process. Andy Haldane made that point remarkably forcefully in evidence to both the Treasury Committee and the parliamentary commission. Therefore, the simple test of the leverage ratio is extremely important. Vickers came up with 4% and the Government have gone for 3%. I am convinced that 3% is not enough, but perhaps 4% is too much. Certainly, as the report we have published makes clear, we should be looking at that. There is a problem for Nationwide and for building societies, but we really cannot let that tail wag the dog when it comes to sorting out the banks’ part of it.
	Secondly, there is the question of industry-wide separation, which a number of Members have referred to. I want to be clear about what we are setting out to do
	and what we have recommended. The electrification of the ring fence is by means of allowing the regulator a power to separate an institution. The institution is observed by the regulator to be burrowing, tunnelling, climbing over, powering through—however it is done and whether it is a tiger, fox, wolf or whatever—and the regulator then makes a decision for that one institution, saying, “You’ve tried your luck too far. That’s it: your institution is separate.”
	The wider power seeks to address the fact that we are not going to have another crack at this for a good few years and that in all probability, in five or six years’ time, things will be recovering and people might say, “Well, the punch bowl is not there yet so we don’t have to pull it away. Let’s all just leave it be”. We are saying that the Bill should permit secondary legislation if necessary. There should be a review—I cannot remember whether we agreed that it should be every three years or every five years—at which time the Financial Stability Committee could recommend, were there an attempt to undermine the system, that the Government bring in secondary legislation to effect a total separation. That is an immense number of barriers between the placing of the possibility in a Bill and the actuality of it happening. I really hope that the Government will accept the argument that allowing for such a power in the Bill would stand as a potential encouragement to the banking system not to seek to undermine the ring fence.
	Ever since I started to study this in the last Parliament, when I served on the Treasury Committee with the now Lord McFall, I have been a Glass–Steagaller. I am in favour of full separation. However, I accept the Vickers compromise, because it is where we have got to. I accept it on the assurance that the ring fence is properly electrified and that there is the fall-back power.
	My third point relates to the sibling or parent governance structure. The parliamentary commission’s members broke up into panels, and we have now all reported back. I had the honour of chairing a panel on corporate governance. The evidence I saw was not reassuring. If there is a parental relationship, the temptation of the CEO to tell the ring-fenced bank what it should do will, over time, become overwhelming. Therefore, an equal governance structure, which gives proper independence required within the corporate governance of the ring fence, is absolutely essential.
	The last point relates to derivatives. When someone defines a simple derivative, will they let me know what it is? I know what a simple product is. When I want to fix my risk by having a fixed-rate loan, I know that there is a derivative product that I am sold. I understand that and have no problem with that product. The problem is this: why on earth does that have to be originated in a ring-fenced bank? Why on earth can it not be sold on an agency basis? It will cost me a little bit more, but I will probably get advice on which is the best one in the marketplace. We have agreed with the Government that simple derivatives should be permitted but, as our report shows, it was pretty well surrounded by caveats.
	My final point is that we need to answer the question what are banks for, because it is at the heart of the whole issue of separation. Over the past half century or so we have pushed together various businesses, some of which were never banking and never will be. The problem now is that we talk about bankers as a collective when we are really talking about bankers, financiers, traders,
	stockbrokers, and all sorts of other people. This makes it difficult when we come to consider regulation of the profession. Pure banking, if I can put it like that, is a profession, can be regulated as a profession, and can have professional standards expected of it, but many other areas should be regulated in different ways; traders should be licensed, and so on. I am sure that we will come on to consider that issue.
	My right hon. Friend, if I may call him that, the Member for Wolverhampton South East (Mr McFadden), chaired a panel on small and medium-sized enterprises and I chaired one on Scotland. One of the things that came out of that is that banks have completely failed industry, individuals and commerce. My worry is that this process will be about the political bubble talking to the financial bubble—the Westminster village talking to the City village. At the end of all this, we need a banking system that serves commerce and industry. If that means that we have to start by getting more competition through breaking up RBS or creating a “good bank, bad bank”, then so be it; there is a lot that we need to look at. However, what we must do is ensure the availability of reasonable credit to our constituents and provide a system that is resolvable, so that at least for a couple of generations we can go without a crash.

Several hon. Members: rose—

Nigel Evans: Order. I am lifting the time limit for the remainder of this debate. I call Mr John McDonnell.

John McDonnell: Thank you, Mr Deputy Speaker. Does that mean that I have an hour and a half?

Nigel Evans: You should be so lucky.

John McDonnell: I most probably will not even take 10 minutes.
	I am very pleased that the plane of the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso) did come in, because he always makes complex issues simple and entertaining. There is a consensus in the House around regulation as the approach to take towards resolving the banking crisis and ensuring that, if we do not prevent a future crisis, we at least stave it off for, as the hon. Gentleman suggested, possibly another 70 years. The degree of positioning is around Glass-Steagall-type full separation, a ring fence, and then, as he said, the novelty of an electrified ring fence. There must be different power levels of electricity on this ring fence, as well.
	I stand outside that debate, because I do not think that regulation will work. I was the first Member to raise the issue of Northern Rock in this House. At that time, I completely underestimated what Northern Rock was up to. I thought that it was all about an offshore tax scam that was part of its link with the organisation that it called Granite; I had no idea of the scale of the problem that would be unravelled. I can remember the then Chief Secretary to the Treasury, I think, leaving the Chamber after I had talked about Northern Rock, to obtain a briefing about what I was talking about. I realised that what I was talking about was a crisis that
	was being created in the City by greed, primarily, and by speculation and casino banking. I remember being at the Labour party conference in the 1980s, around the time of big bang, and organising the launch of a book called “Big bang: the launch of a casino economy”, authored by the then Member for Hackney and my hon. Friend the Member for Bolsover (Mr Skinner), which predicted some of the outrageous potential that there was for speculation as a result of big bang.
	When I raised Northern Rock, I completely underestimated the levels of casino banking and the corruption that was taking place. In the previous debate a few weeks ago, I described the City as a “cesspool of corruption”, which it was. However, what was also revealed was the absolute incompetence. It was like “The Wizard of Oz”—when the curtain was pulled back, there was not a wizard but someone scrambling with various levers. We discovered then that the hierarchy of British banking did not even understand the instruments with which they were working because they were so complex. Then it all started to unravel, and we discovered scales of greed, incompetence and corruption that none of us expected.
	At that time, we were assured that the regulatory system was not at fault, but we soon discovered how inoperable it was. The result, as we all know, is that the then Government intervened to borrow and used taxpayers’ money to bail out the system. At its peak, taxpayers’ exposure to the bank collapse was on the scale of £1.2 trillion. I understand that so far we have retrieved only £14 billion of that taxpayers’ money. The second wave was the austerity programme introduced to pay for the Government intervention to save the banking system. Mervyn King estimated the cost of that to be £1 trillion. Anthony Haldane, who is probably more accurate in his assessment, estimates that we have lost the equivalent of between one and five years’ GDP. Those absolutely staggering sums are the result of a crisis brought about by incompetence and greed. The majority of people are 7% poorer than in 2007, and their living standards have fallen, according to the latest estimate, by 13.2% since 2008. The median household income in 2015-16 will be the equivalent of that in 2002-03. These are the implications of what this wealth of greed brought about: mass unemployment, welfare benefit cuts, food banks, and parents missing meals so that children can eat. It is absolutely staggering.
	I find it extremely difficult to come to terms with an issue that was raised by my right hon. Friend the Member for Holborn and St Pancras (Frank Dobson). Since the crisis occurred—since I first stood up in this House and mentioned Northern Rock—and we went on to the nationalisation of banks, and then to quantitative easing on a scale that we had never seen before or could even comprehend, the scandalous practices have not gone away: they have continued. As my right hon. Friend said, the bonuses have continued, fraud has continued, LIBOR interest rate fixing has been investigated, and we have seen tax evasion and money laundering. This is happening even when the bankers are in full public sight. At a time when the eyes of the country are on them, they are still manipulating the system.
	I find it astounding—I have raised this in the House three times, and 10 days ago I received a letter from the Minister about it—that when quantitative easing was
	introduced, we discovered through press reports that bankers even then sought to profiteer from it. The letter from the Minister confirmed that at one point the Bank of England had to intervene and withdraw from the market because there were suspicions of price fixing and manipulation of the market during quantitative easing.

Kelvin Hopkins: I am very interested in and admire what my hon. Friend is saying. There is a suggestion that the recent surge in share prices is simply the effect of quantitative easing and that it bears no relation to what is happening in the real economy.

John McDonnell: Exactly. I accept that point, but the relatively simple point that I am trying to make is that a group of people who have, in effect, been caught with their hands in the till are trying to use the money that has been used to bail them out to profiteer at the taxpayers’ expense. That is staggering and it says to me that regulation will not work with these institutions. Even when they are absolutely shamed, subject to public opprobrium and under the acute gaze of the public eye, they still try to profiteer.

Steven Baker: This is the point that I have been trying to make. Every time the state sets up these dreadful institutions, people are able to profiteer. If we tell people that we are creating new money out of nothing and giving it to them in exchange for Government bonds, of course they will seek to make a profit. The thing to do is to make sure that they have institutions within which they can make a profit justly.

John McDonnell: There is another route and I will come on to it. The hon. Gentleman and I agree about the problem, but there is another solution. As he has said, regulation does not work with these institutions or the motivation to profiteer. I do not think that the new regulatory system—whether it be subject to a ring fence, an electrified ring fence or leverage ratios—will work. The reality is that as long as the banks are in private hands and have profit as their motive, they will aim to get around a regulatory system. The hon. Gentleman has mentioned how they will dig under and go around the fence. Like a chicken finding its way into the coop, they will always find a way. The regulatory regime proposed by the Bill is complex and, to be frank, virtually unenforceable. I think it will be almost impossible to execute the attempt to impose a firewall, as the Good Banking Forum concluded recently.
	I agree with the hon. Member for Caithness, Sutherland and Easter Ross that we need to revisit the question of what role banks should play and what people want. I think that people and society want and need banks in which they can safely deposit their money and savings and which lend responsibly and provide credit to finance investment growth across the country. That is not what this Bill will secure and it is certainly not what is happening at the moment. The larger banks have an estimated £6 trillion at their disposal, but just £200 billion —3% of the overall total—is used to fund investment in this country’s industry. I do not think that a system of honest, responsible banking or long-term investment is deep in the culture. That may well have occurred at the
	earliest stages of capitalism but, many crises of capitalism later, we should have learned the lesson that this system is not working.
	I believe that the only way to secure probity and to ensure that people’s funds are safe and secure and that we can invest in our economy in the long-term to create jobs is through a publicly owned and democratically controlled banking system. Of course, we own banks at the moment—we nationalised them. After Northern Rock, I remember standing up in the House to urge the then Chancellor of the Exchequer, my right hon. Friend the Member for Edinburgh South West (Mr Darling), to nationalise the banks. The next day he said that he had nationalised three of them. I told him that I had been right and he said, “Well, you were bound to be right at least once in 30 years.” We nationalised those banks, but we have no control over them. They are not democratically accountable to Government, workers, investors or the wider community. That is why they are not investing and why people cannot secure loans.
	We should take full ownership of the larger banks. We already own Northern Rock, RBS and Bradford & Bingley and a large part of Lloyds. We should take public ownership and control of the UK-based operations of Santander, Barclays and HSBC, and we should create a unitary industry. That would enable us to control investment, secure savings, stop the paying out of large bonuses and ensure that any surpluses are returned to the public by investing in the public good. That is secure and safe banking, which is what I thought was the House’s objective.
	What would full nationalisation cost? An excellent piece of work for the Fire Brigades Union by Michael Roberts and Mick Brooks, which was published and launched in this House only a week ago, estimates that it would cost £55 billion at current market rates. That is 3% of GDP. We could ensure that there would be no need for any cash exchanges and could simply swap shares for bonds, thereby saving the public purse a large amount of money. The Co-operative bank and mutuals would continue to operate as alternatives, as would credit unions, because we have confidence in them as safe and secure banks. We could also—we called on the previous Government to do this—remutualise those banks that transformed themselves from mutuals into limited companies.
	In that way, we could achieve the stated objectives of the Bill not through regulation, but through public ownership and control. I do not believe that regulation will work. The system has gone too far and the profit motive has overridden any sense of value or judgment in the City. Unless we take action now, we will be back in a limited number of years to deal with another banking crisis. To be frank, we have not even talked tonight about the shadow banking process, the scale of the transactions that take place within it or how we should deal with it. That is beyond all our controls at the moment.
	I will finish by saying who we are taking action for. We are doing it for my constituents, some of whom are threatened with evictions or job losses or are having their welfare benefits or their services cut, all because of an economic crisis that they had nothing to do with. They did not cause it and did not contribute to it. It was caused deep in the financial sector of this country and across the world. My constituents deserve not reform
	of the banking sector in this country, but an absolute transformation of it, based on public ownership and democratic control.

Andrea Leadsom: I am delighted to speak almost last in this debate.
	I agree with the hon. Member for Hayes and Harlington (John McDonnell) when he says that many people have suffered terribly as a result of the financial crisis, and when he speaks of the greed and the complete lack of regulation and control over banking over the past decade.
	The British people are still furious about the behaviour of bankers, and they have every right to feel that way. Banks were already seen as greedy and arrogant. They have now reached the depths of humiliation in the wake of the LIBOR manipulation, PPI mis-selling and bank swaps mis-selling. Individual bankers are rightly being investigated by the police. I and all colleagues in the Chamber hope that if criminality is proven, they will go to jail and bear the same brunt of punishment as any other criminal.
	Nevertheless, we must recognise the vital importance of the financial services sector to the UK economy. It is a huge employer. If all financial services are included, more than 1 million people have jobs in the sector. The vast majority of those people do an honest day’s work for a fairly modest salary and do not receive a large bonus.
	We must also remember that we are talking about a globally mobile business. In the investment banking business, someone can pick up the phone in London on a Friday morning, put it down on Friday night and carry on doing the same deal on a Monday morning in Singapore. While reforming the industry to make it safer for people in this country, we must be careful to preserve it so that we can take advantage of the enormous opportunities that it provides, such as the sale of mortgages and health and life insurance policies in developing markets such as China, Brazil and South Korea that do not have developed, simple, basic banking packages. We can make profits for Britain at the same time as helping those developing economies. It is important that we remember to protect this industry at the same time as reforming it.
	The Bill offers the opportunity to put right many of the wrongs of the previous Government’s approach to financial services in the UK. It will help to bring back to UK banking what used to be called the balance of fear and greed. For many years, there has been enormous greed with no fear of consequences. We have allowed a small group of vast institutions to grow by consolidations, mergers and takeovers. The culture has been one of, “Heads, I win; tails, the taxpayer loses.” That has proven to be true.
	The Bill will address Labour’s failed tripartite system of regulation. It will put accountability for the supervision of the banks and for systemic risk back into the hands of the Bank of England. In 1995 when Barings went bust, before Labour had had the chance to mess up the regulatory system, I was a small cog in the wheel trying to prevent a run on the banks. I remember supporting the then Governor, Eddie George, to ring the various international banks to ensure that there was not a run on the banks on Monday morning. Why did he do that
	over that fateful weekend? It was because he knew that the buck stopped with him and that it was entirely down to him to ensure that there was not a run on the banks. How different it was under Labour’s tripartite system. When people were queuing down the streets to take their money out of Northern Rock, the Treasury was looking at the Bank of England, which was looking at the FSA, and nobody took any action. That was utterly shameful, and the Bill will ensure that it cannot happen again.

Jim McGovern: The hon. Lady said that she was a small cog in the wheel and that Sir Eddie George was the big wheel. Does she think that that was working at that time?

Andrea Leadsom: I always think that the proof of the pudding is in the eating, and the fact is that Barings was culpable for a potential massive run on the banks, because of rogue trading. It did not happen, and why? It was because one individual took responsibility, surrounded himself with people who could prevent it and ensured that it did not happen. We do not need to look any further to see that it was working.
	There is one area in which the Bill is a lost opportunity. It offers us the chance to address the big elephant in the room, which is the lack of competition in the banking sector. We have the chance to go well above and beyond what John Vickers proposed. Retail banking in this country should be truly competitive. As we all know, one of the biggest problems in our economy right now is the lack of finance for small and medium-sized enterprises, which are the lifeblood of our economy.

Steven Baker: My hon. Friend is absolutely right, of course, but the other problem is the lack of return for savers. Is that not the other of the current system’s twin failings—that it is failing to intermediate between the two groups?

Andrea Leadsom: I agree completely, and my hon. Friend tempts me down the route of blaming quantitative easing for the extraordinarily diverse results in the savings market, particularly for pensioners and other savers whom we desperately need to spend more. The evidence is that as a result of reduced annuities, their propensity to save has increased. We would like people to spend more in the economy, but they are not doing so.
	The best way to shake the banks out of their current complacency is to allow new entrants to get into the market, bringing with them the high standards of service that customers believe they should be able to take for granted, including IT that works. To go back to Adam Smith in “The Wealth of Nations”, a truly competitive environment requires that there is free entry and exit for market players. That is not the situation in banking in this country right now. New entrants have experienced massive barriers to entry not just from competitor banks but from the regulators. Likewise, failure has not been possible, as we have seen at eye-watering cost to the taxpayer. Rather, the trend has been towards consolidation and mergers, with a small number of very large banks dominating. In 2000, there were 41 major British banking groups and subsidiaries, whereas in 2010
	there were just 22. Four banks have an almost 80% market share of the personal current account and SME lending market, so there is evidently a need for genuinely comprehensive action to increase competition in Britain.
	One significant step in the right direction would be to take the opportunity to sell off the state-owned banks, as the Governor of the Bank of England himself suggested last week at the Parliamentary Commission on Banking Standards. Selling off the taxpayer-owned banks in small parcels would instantly create potential new challenger banks, and I urge the Government to consider doing so again. The Governor regretted the fact that RBS remained in public ownership and pointed out that we had not yet solved the “too big to fail” problem. He urged the Government to do more.
	As right hon. and hon. Members have heard me say a few times before, the real game changer would be introducing full bank account number portability. We take that for granted with our mobile phones—if we change our provider, we take our mobile phone number with us. Why should it be any different with our bank accounts? Earlier this evening, the Father of the House told me that one of his ex-colleagues had spent years banging away in the Chamber about the importance of mobile pensions in the private pension sector. I was unaware that it had ever not been possible for someone to take their pension with them when they changed jobs, but apparently one of the greatest revolutions in the pensions sector happened when account number portability was achieved. We know what such portability did for the mobile phone sector; surely the time has come to introduce it to the banking sector.
	At a recent round table meeting with various different luminaries from the banking sector, Which?, the Bank of England and so on, all those present agreed on a show of hands that if anyone is to achieve bank account number portability, the UK should be first. Let us, as the world’s leading financial services centre, be first to innovate and not wait until someone else does it.
	Switching instantly between banks would remove the huge barrier to entry that currently constrains new, innovative banks. Several benefits would accrue from that policy. First, it would cut barriers to entry for new challenger banks. Increased competition would force existing and new banks to differentiate themselves to retain customers, leading to enormous improvements in customer service and the differentiation of bank offerings. Secondly, new challenger banks would mean more banks and increased access to new and different sources of funding, and over time that would reduce the risk of banks being “too big to fail”. The US has more than 3,000 banks and when a retail bank fails there is just a ripple and hardly anyone notices. We need diversity of financial service providers, which I genuinely believe such a measure would provide.
	Thirdly, industry experts argue that the impact of creating a new shared payments clearing infrastructure would mean the banks sorting out the problem of multiple legacy systems that dates back to the consolidation of the 1990s. Clearing banks currently spend billions each year on string and Sellotape solutions for creaking systems, and we have seen twice recently the problems that RBS subsidiaries had in managing payments for their customers because of poor systems and systems failure. New systems could lead to a reduction of up to 40% in bank fraud that costs the sector billions of pounds each year.
	Fourthly, multiple legacy systems within banks make it hard for them to evaluate business ideas. The banks’ poor systems make it harder for them to assess good business ideas versus good collateral, and better and new systems would enable them to make better lending decisions to SMEs. Finally, and importantly, account number portability would offer the potential for the orderly resolution of a failed bank. The potential to close down a bank and transfer its accounts overnight to a solvent bank would be a valuable tool in any future financial crisis.
	To kick-start a move to account number portability, the Government would need to introduce a new payments regulator with the power and mandate to require equal and fair access to money transmission systems. Only an independent regulator of money transmissions would get the job done, and using an existing regulator or the Office of Fair Trading is unlikely to be effective. I therefore welcome the Minister’s announcement of a consultation on establishing a new, independent payments regulator.
	I conclude by saying that seven-day switching, as proposed by John Vickers, is not the same or even similar to full bank account number portability. It is a costly, overly-manual way of way of improving the customer experience, and does not solve the problem for small businesses, many of which—some 80%—have felt unable to change bank account provider in the past three years. Banks have SMEs tied up and want them to have personal overdrafts and bank accounts, business accounts and fully funded bank loans, whether or not they draw them down. It is extremely complicated for an SME to move banks in the current environment, and trying to change bank account number is part of that problem, as well as the lack of other banks that are willing to lend.
	The first problem with seven-day switching is that it will not change the future for SMEs. Secondly, it does not address the administrative burden for SMEs. If we find that seven-day switching dramatically increases the number of people who switch bank accounts, that will simply increase the burden on all of our milkmen, dry cleaners, Tesco or whoever it might be. We will all have to change our bank account numbers with them, and they will have to change their systems. For big businesses that might not be a problem, but it is certainly a problem for small businesses. Which? has provided a wealth of evidence showing that SMEs are concerned about the impact of seven-day account switching on their administrative burden. I urge my hon. Friend the Member for Chichester (Mr Tyrie), in his Parliamentary Commission on Banking Standards, to put forward proposals on bank account number portability when he produces the final report later next month.
	Now is not the time for timidity in reforming our banking sector, and it is not the time for false economies. We have to focus on enabling new entrants into the market, taking steps that are good for the consumer and for small businesses, and beginning the long process of restoring the reputation of our banking sector.

Stephen Barclay: It is always a pleasure to follow my hon. Friend the Member for South Northamptonshire (Andrea Leadsom), and, Mr Deputy Speaker, to be the last speaker to catch your eye before the wind-ups.
	The Father of the House spoke about one of his speeches in 1984, so I took the liberty of having a look. If the House will indulge me, I will quote from it:
	“There has been a great deal of talk about capital. Of course that is important, but vastly more important than that is expertise, integrity and judgment.”—[Official Report, 16 July 1984; Vol. 64, c. 68.]
	Indeed, there was much expertise, integrity and judgment in my right hon. Friend’s remarks, and in essence I want to focus my comments on them. The Bill addresses structure and it is right to learn the lessons. Of course there was too much leverage in the system. No one would think that the level of liquidity available to the banks at a time of crisis was adequate, and there has been much work by regulators and central bankers since the 2008 crisis to address that. What there has been rather less of, however, is a willingness to tackle culture.
	While I commend the Government for the Bill’s focus on leverage, and on dealing with the well measured suggestions of my hon. Friend the Member for Chichester (Mr Tyrie) and his commission, we should be clear on what the Bill is not doing. It will not stop retail bank failures, such as Northern Rock and Bradford & Bingley; it will not stop investment bank failures, such as Lehman’s; and it will not stop the regulatory failures of universal banks, as we have seen with the anti-money laundering and sanctions abuses or the LIBOR abuses by some of our largest banks. The Bill does not address the shadow banking world—the £200 billion of risk that is currently carried in private equity. Most of all, the danger of today’s debate is that we do what is so often the case after a regulatory crisis: we focus on solving the problem we have just had. We are not talking about the impact on banks if we lose control of interest rates, which we all hope will not be the case. The focus is on the structural failures relating to liquidity and capital, and that has been the tenet of the debate.

Jim McGovern: Why would it be wrong to focus on our recent problem?

Stephen Barclay: Of course that is not wrong. I said that the Bill is welcome, and that it is a positive response to the commission’s report. The focus on leverage and liquidity is absolutely right, and that is why I pay tribute to the work of central bankers and regulators. I am not sure that the hon. Gentleman was listening to my remarks. The danger is that we focus on the past and do not anticipate the future. There is a need for flexibility, and for that the Bill needs to tackle culture. The paradox is that individuals in banks are motivated by big bonuses, which drive their behaviour, yet when things go wrong, we do not have their corollary, which is big fines against individuals. That might be the sort of thing to grab people’s attention when they become aware of issues.
	I am glad that the hon. Member for Nottingham East (Chris Leslie) is back in his place, because he missed addressing that point in his remarks—it is a shame he would not take interventions from me. Under his Government, the Financial Services and Markets Act 2000, probably the most-debated Act for many years, created a rule book of more than 6,000 pages. He spoke about the need for more regulation and suggested that Conservative Members had failed because of the lack of regulation, yet we had 6,000 pages of it. The issue was that the regulation was not enforced.
	It is even worse than that, because the hon. Gentleman actually allowed a regulatory regime that included things such as guaranteed bonuses. Not only would somebody get a bonus if they performed well, but they got a guaranteed bonus even when the bank collapsed. When the financial crisis hit in 2008, contractually the banks were signed up to guaranteed bonuses, so they were still doling out money under the enhanced regulatory regime to which he referred—true socialism in action.
	It gets worse. There was a fines system that incentivised banks to profit from the wrongdoing of other banks. When a bank was subject to a regulatory fine, the money went not to the taxpayer in the form of funding good works or to customers of the bank affected, but to the other banks in the form of lower levies to the regulator. When a bank committed a wrongdoing, therefore, other banks in the sector profited. This is the regulatory regime on which we are now being lectured.
	Let me give another example on structure: the collapse of RBS. After 10 months of the brightest minds in our Treasury—I am sure they are the brightest minds—looking at this issue, they still could not rely on the books. So untrustworthy was RBS’s auditing that the permanent secretary to the Treasury had to send for a letter of direction from the Chancellor saying, “I can’t rely on the books. It’s such a mess, Chancellor, you’ll have to give me a letter of direction.” We will not take any lectures from the Opposition, therefore, about their regulatory regime or the mess in which it has left our constituents, who are the ones footing the bill.

Richard Bacon: It is a pleasure to listen to my hon. Friend, who, unlike many in the House—particularly in the Opposition, but also, I fear, on the Government Benches—as a former financial regulator actually knows what he is talking about, which is a dangerous thing here. In September 2007, when Northern Rock collapsed, the Treasury did not even know if it had the power to take it over, which was something of an indictment of thousands and thousands of pages of regulation. Does he agree that it might not be a coincidence that John Pierpont Morgan and Nathaniel Rothschild, the founders of two of the most successful banks in the 19th century—JP Morgan and NM Rothschild —had a considerable personal interest and stake at risk in those institutions if things went wrong?

Stephen Barclay: My hon. Friend is absolutely right, and he is right because, as I know from my time in banking, people in banks are usually aware of the problems, but there is a perverse incentive—a short-termism—that says, “If the rewards are delivered short term, but the risk is unlikely to crystallise”—

Christopher Leslie: I believe that the hon. Gentleman was director of regulatory affairs at Barclays bank from 2006 right up, I think, until the general election. Will he assure the House that he was not aware of any of the LIBOR issues that took place under his watch?

Stephen Barclay: Once again the hon. Gentleman has got his facts plain wrong, because although I was—[Interruption.] We can all see that he has had a quick read, but as so often with Labour politicians he has not
	understood what he has read. I was director of regulatory affairs in the retail bank and, as anyone knows, the retail bank was not responsible for LIBOR. That was an investment banking issue.

Christopher Leslie: Will the hon. Gentleman give way?

Stephen Barclay: Unlike the hon. Gentleman, who repeatedly refused to take interventions, I will happily take another.

Christopher Leslie: I did take a fair few interventions. If the hon. Gentleman was the director of regulatory affairs at Barclays bank from 2006 until the general election on the retail side, was he aware of the mis-selling of payment protection insurance?

Stephen Barclay: Once again the hon. Gentleman has not listened to the answer. I was actually head of anti-money laundering and sanctions for half the period, so once again he is getting the basic facts wrong. It is interesting that he does not want to debate the issues. He does not want to debate the fact that there were guaranteed bonuses or a fines system that incentivised the wrong things. He does not want to debate the fact that, as my hon. Friend the Member for South Norfolk (Mr Bacon) correctly pointed out, we had a Treasury that was not even aware of its own powers. We also had a tripartite system in which it was unclear who was in charge. We then had Treasury officials looking at banks and their assets without being able to rely on what was under their noses. That is the legacy that Labour left us.

Christopher Leslie: Will the hon. Gentleman give way?

Stephen Barclay: No. I have taken two interventions from the hon. Gentleman and he did not do well with either. I want to make progress, because I am conscious that time is moving on.
	I shall return to the comments made by someone who, unlike the hon. Gentleman, speaks with professional expertise, namely the Father of the House. He was correct—as he is on so many issues, but particularly this one—to talk about the danger of focusing on structure and not rooting out conflicts of interest. That is at the heart of the point I want to make about individual accountability, linked to conflicts of interest—about the awareness, as my hon. Friend the Member for South Norfolk pointed out, of those in institutions who know where the risks are and how they are incentivised to speak up. On Thursday we will have a debate on the NHS and the fear of whistleblowers to speak out. Many of the issues in the NHS are similar to what we have seen in our banks. Let me give the House an example that makes the point highlighted by my hon. Friend. So far, the two biggest fines imposed on any individuals in banking were imposed on two Northern Rock executives. On both occasions they were less than those individuals’ bonuses the preceding year. How are people incentivised to do the right thing in our financial sector when they can see such short-term benefits from wrongdoing and very little downside risk?
	I very much endorse what my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) said about empowering consumers by having portability in the system and grass-roots pressure. However, we cannot
	rely on that alone—I do not think she would suggest for a minute that we could—to address the regulatory failures or the asymmetry of information that customers face.

Jim McGovern: I became an MP in 2005, and between then and about 2009, I do not think any business people approached me. Since then, however, a lot of them have approached me to express their grievous concern about keeping their businesses going. I have to say that I am struggling to understand what the hon. Gentleman means, and I think the people in my constituency who have started small businesses as joiners, bricklayers or whatever would also struggle to understand him. Will he please make his point in lay terms?

Stephen Barclay: Yes, I can address that question head on. It is logical to have introduced measures to try to manage risk in the financial sector, but we are requiring banks to retain more and more assets at the same time as asking them to lend more. We are therefore asking them to do two conflicting things, as well as introducing a structural fix that innovative people will often be able to find ways around. For example, the shadow banking sector is not affected by this kind of proposal. If we want to address innovation, to be flexible and to move with the market, and retrospectively to impose fines for wrongdoing, we would be far more successful if we changed the culture than if we imposed rigid rules.
	In many ways, I agree with the hon. Gentleman, in that we all have constituents who complain that the banks are not lending, but perhaps that is an issue for another day. There are many areas in which the banks’ behaviour is wrong, but we cannot change the culture through rules alone. We had more than 6,000 pages of rules, but that did not achieve the right culture. We can achieve it by having individual accountability, and one of the best ways of doing that is through personal fines.
	I am sure that the hon. Gentleman read the Daily Mirror today, as I did; I always try to avail myself of the Daily Mirror. On the front page, there was a story about the “Fat cat in the hat”, who is a former Barclays executive, according to the report, and it must be true because it was in the Daily Mirror. The point is that it is individuals like that, where there is alleged wrongdoing, who are able to keep their bonuses and keep their profits. That does not send the right message on culture. Rules are too blunt a tool.
	If we want to change the banks, the Bill is extremely welcome, but I hope that the very constructive proposals put forward by my hon. Friend the Member for Chichester will be given further consideration. There is much to support in the Bill, however.

Mark Garnier: Does my hon. Friend agree that the Chancellor’s measures stating that the fines levied on RBS should be taken from the bonus pool go some way towards addressing the point that he makes?

Stephen Barclay: Those measures are a step in the right direction, but they will also catch the legitimate people, rather than focusing on those who have done wrong. There will be no means of clawing back from wrongdoers. Let us take the example of Sir James Crosby. To what extent would he face retrospective clawback? He is long gone, and he has taken the money.

Andrea Leadsom: Is not this exactly the issue that we have been debating over the past week, with the EU proposal to cap bonuses? That would have the unintended consequence of pushing up salaries, which are notoriously difficult to claw back. Does my hon. Friend agree it would be much better to put in place a proper compensation scheme, perhaps through statute, that was determined by the banks themselves and that ensured clawbacks and full accountability?

Stephen Barclay: My hon. Friend is absolutely right. One-size-fits-all rules often capture the good but are insufficiently robust to deter the bad. Yes, the Bill is welcome and takes constructive steps forward, but we also need to see more measures from the Treasury on individual fines.

Richard Bacon: There are some people here who are not interested in the debate, but they can go away if they want to. I am grateful to my hon. Friend for giving way; I have now caught up with those on the Labour Front Bench in terms of interventions.
	I heard from 27 employees of Lloyds bank who were caught by the temporary ban on bonuses. Some of them were getting bonuses of only £2,000, so that was quite unfair. I think my hon. Friend the Member for Wycombe (Steve Baker) might have suggested that senior bankers and bank directors should be required to post personal bonds. Does my hon. Friend agree that that would go some way towards dealing with the problem?

Stephen Barclay: My hon. Friend is right. We have to introduce into the system a position in which those at the top who are getting the biggest rewards also face the biggest risks. Some colleagues have talked about criminal sanctions, but the burden of proof is such that it is often difficult for the prosecuting authorities to get sufficient evidence to make it an effective tool. I am not against that, but it is often not an effective tool in practice. We need to ask how we can get to a situation where we do not catch those on £2,000 bonuses and those who have done no wrong, and do not set in place a whole load of rules that fetter innovation or deter business, but where we do create a stick and a deterrent for those who have abused the system and know they are still on the hook for significant financial loss. Those are the people most motivated by big fines in the first place; we should have a correlation between the bonuses and the fines.
	In conclusion, the Bill is constructive and welcome, but we need to hear much more from Treasury colleagues about individual accountability, not just structures.

Cathy Jamieson: We have had a wide-ranging debate and heard some useful, thoughtful and constructive contributions. Everyone has had the opportunity to make all the points they wanted to—except, perhaps, for the Father of the House, who understandably bemoaned the fact that he had only 12 minutes. He might well be disappointed not to have been here at a later stage of the debate to give us the benefit of his wisdom, as he certainly gave us an interesting contribution.
	We heard the maiden speech of the hon. Member for Eastleigh (Mike Thornton). He paid tribute to his predecessors in the traditional style, but raised a number
	of important points, not least of which was about bank lending and particularly the lending scheme for small businesses.
	I would like to pick up some of the general points and themes running through the debate. My hon. Friend the Member for Nottingham East (Chris Leslie) gave a comprehensive opening speech from the Opposition Front Bench. Other Members picked up the point that he made that we cannot have any repetition of the actions that led to the taxpayer bail-out. The actions and attitudes of the bankers meant that the banking sector—or individuals in it, as many hon. Members have said—thought that it was okay to retain the profits privately when the sun shone, to use that metaphor, but to let the losses fall to the public purse when the rainstorms arrived. We simply cannot allow a repetition of such risks to taxpayers in the future. That is why the banks must be reformed here in the UK, and further reformed in the EU and across the world.
	As my hon. Friend the Member for Nottingham East outlined—it was echoed by my right hon. Friend the Member for Wolverhampton South East (Mr McFadden) and by my hon. Friend the Member for Wirral South (Alison McGovern)—our financial sector is larger than most. The greatest global financial centre is in the City of London, and there are important centres in Edinburgh and across the UK, so we have to take any additional steps required to guard against any risk of future collapse.
	My hon. Friend the Member for Nottingham East also spoke eloquently about the passage of the Financial Services Act 2012, which sought to address some regulatory shortcomings. Many hon. Members will have heard him during the course of the Public Bill Committee speaking eloquently—and, I have to say, frequently—about many of the issues that we are looking to this Bill to address. He highlighted a number of them, including concerns about LIBOR.
	I hope that the hon. Member for North East Cambridgeshire (Stephen Barclay) will take the point made by my hon. Friend the Member for Nottingham East. The hon. Gentleman talked a lot about regulatory shortcomings, but we need to remember how members of the public and ordinary people in the street will view this issue. People in the banks were culpable; they were individuals who somehow thought it was all right to take those risks and—[Interruption.] I hear the hon. Gentleman say, from a sedentary position, that it was our system. At the end of the day we can have systems, we can have regulatory reform, we can have all those rules in place, but if the culture and the attitude of the people involved do not change, that will simply lead to more problems in the future. Members on both sides of the House have recognised that today. I am surprised that the hon. Gentleman, who, I understand, previously had a career in the banking industry and, indeed, in regulation, does not seem to accept that individuals as well as systemic failures bear some responsibility.

Stephen Barclay: rose—

Cathy Jamieson: I am happy to be corrected if I have misunderstood the hon. Gentleman.

Stephen Barclay: The hon. Lady seems to be misrepresenting the entirety of my speech. The whole speech was about the need for individual accountability. I said that under the system established by the hon. Lady’s party, there was no such accountability. That is why Sir Fred Goodwin walked away with his huge bonus untouched. Under that system, there were no real fines and no individual accountability. That is the essence of it.

Cathy Jamieson: I understood the hon. Gentleman to be blaming the regulators rather than the individuals who were involved in the wrongdoing. Let me repeat that, notwithstanding the amount of regulation that is introduced, if there are people who are intent on wrongdoing, we need to address the culture and the expectations in banking. I think that members of the public expect us to do that.
	A number of important points were made at the outset of the debate about the timing of the Committee stage. My hon. Friend the Member for Nottingham East, and a number of those who intervened subsequently, expressed concern about the fact that the Bill provides such a slim framework for further secondary legislation, largely by Treasury order. My hon. Friend the Member for Bassetlaw (John Mann) described it as an “Is this it?” sort of Bill, and my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) called it a mini-Bill.
	The Minister seemed to suggest that we would have adequate opportunities not only to scrutinise the Bill itself, but to scrutinise and respond to whatever other measures or recommendations were made by the parliamentary commission at a later stage. I think that how, when, and where that scrutiny will take place remains rather uncertain. The hon. Member for Chichester (Mr Tyrie), the chair of the commission and of the Treasury Committee, asked for two days to be provided on Report, but it seems that Ministers did not consider that appropriate, or did not wish to do so. That is serious, because the Bill is very thin as it stands, and a great deal of work will be needed in connection with the secondary legislation. We ought to have every opportunity to scrutinise not just the good work that has already been done by the commission, but what it will do in future.
	The commission report has helpfully provided us with a series of amendments and explanations of why they are important. It has also provided us with information on why the members of the commission feel that certain amendments should be proceeded with even if the Government do not agree with them. I think that we should have an opportunity to look at those amendments properly. I think that the public would expect us, having given the responsibility to the commission to make recommendations, to pay proper attention to them, and would expect the Government to take heed of them.
	It is hard for the public to believe that things have changed when they perceive that a massive bonus culture is alive and kicking, and that has been reflected in the debate. A number of Members pointed out that debates of this kind may appear to be technical, and concerned very much with the rules and regulations. People watching may wonder how it affects their everyday lives. A number of hon. Members made the point that we have to ensure that we use the opportunity of legislation to rebuild consumer confidence, but we also have to talk about financial inclusion and diversifying the sector, and we
	have to change the culture of high-risk banking and see an improvement in standards, because that is what people expect legislation and the change to deliver. We also want action to support growth and to create a banking system that serves the needs of our economy, a point well made by hon. Members on both sides of the House.

Paul Farrelly: I, too, used to work for Barclays in a past life. Does my hon. Friend agree that it would not do justice to the reputation and professionalism of this House, and to the many months of work by the Parliamentary Commission on Banking Standards and the Select Committee, if this Bill were not given the most time possible for scrutiny, because it is so important for this country? Does she also agree that one thing we should be very wary of is the watering down of recommendations that have been made by experienced people on commissions, in much the same way as experienced people have looked at the press?

Cathy Jamieson: My hon. Friend makes very good points. There would be real concerns if the Committee stage of the Bill was seen as a rubber-stamping process and the Bill was not scrutinised properly. The Economic Secretary to the Treasury likes to think of himself as a listening Minister—he says that often—so I hope he is listening today to the real concerns expressed by hon. Members. [Interruption.] He does not seem to be listening at the moment, but perhaps someone will give him a nudge and tell him what points I am making on behalf of other hon. Members about the Committee timetable.
	I wish to make a number of points about the particular issues that hon. Members have raised. On leverage, I was reminded very much about our discussions on the pronunciation of “schedule” in a previous financial services debate. Obviously, it will be important for us to have the opportunity to look at the issue of leverage properly. I heard the Financial Secretary to the Treasury talk about the dilemma of trying to ensure that he not only does the right thing for the taxpayers, but listens to the industry. It is very important that the leverage ratio powers need to be clearly taken in the Bill and, as was said during the opening speeches, phased in ahead of the European Union plans for the end of the decade.
	The Parliamentary Commission on Banking Standards highlighted that issue, particularly in respect of building societies and the concern about the 3% ratio. Indeed, my hon. Friend the Member for Bassetlaw raised particular issues about small building societies, with others raising the more general issue of the building societies and how the matter could be dealt with. I would hope that proper scrutiny of the Bill would give us the opportunity to overcome any negative impact or any problems that would arise for building societies, which clearly have different equity structures. I would argue, as did my hon. Friend the Member for Nottingham East, that that is not a reason for not putting safeguards in place. I wonder whether the Government have looked at the matter specifically or will do so. Could they give us some further information, perhaps in the Economic Secretary’s closing speech?
	Another issue raised by a number of hon. Members was the derivatives inside the ring fence. A number of references have been made to the Vickers report and the
	fact that derivatives trading should not be allowed—that was of course the position. However, the parliamentary commission recognised that there was a case for some simple derivative products. A lot of hon. Members have sought a definition of a “simple derivative product”. Again, we need clearer protections to prevent abuses within the ring-fenced retail banks where derivatives are being sold. Again, I expect us to examine that more fully in Committee. I hope that we will be able to get assurances from the Economic Secretary about the Government’s intentions, as this is one area where they depart significantly from the original recommendation of the Vickers report.
	I mentioned that the Economic Secretary likes to think of himself as a listening Minister, and we heard that again from the Financial Secretary when he opened the debate. I have heard that comment on a number of occasions, as I have been on a number of Committees and in Bill debates with the Economic Secretary. Although he has certainly appeared to listen, I am not sure that that has translated very often, if at all, into the acceptance of Opposition amendments or to any change in Government policy. I hope that on this occasion, even if he does not accept amendments tabled by my hon. Friend the Member for Nottingham East and me, he might at least be persuaded to accept the amendments proposed by the Parliamentary Commission on Banking Standards, which are very important.
	I also want to pick up on a number of areas where the Bill makes no comment or does not do enough, as discussed by a number of Members. The hon. Member for Wycombe (Steve Baker) mentioned “Bank of Dave” and the Bill does not address the issue of challengers or new entrants. There is nothing in the Bill on a universal obligation for banks on basic bank account services, which is very important. We take it for granted that we have a bank account, but it is not quite so simple for many people on low incomes.
	Questions were asked about switching and bank account portability. There is nothing in the Bill on mutuality and I do not see anything about a fiduciary duty of care, which was mentioned by my hon. Friend the Member for Glasgow North East (Mr Bain).
	My hon. Friend the Member for Wirral South (Alison McGovern) talked eloquently about how in such debates everyone on the inside speaks in code, making it difficult for those who are external to break through and understand how important such discussions are for them. She put that into perspective very well when she talked about some of the issues that matter to ordinary people. The theme was picked up by my hon. Friend the Member for Hayes and Harlington (John McDonnell), who rose to the challenge of the dropping of the 12-minute limit on speeches and gave us a clear account of some of the challenges for his constituents in the current economic circumstances.
	Of course, it is important that we have a banking system that enhances our economic prospects. We want to see support for enterprise, we want to see growth and we want to see the supply of lending and credit to the economy. A number of Members mentioned that, particularly in relation to small businesses. I hope action will be taken in the Budget, but if it is not, I hope that we will at least see an improvement made through this Bill to the funding for lending scheme so that we give priority to lending to small and medium-sized enterprises.
	We called for that last summer when the scheme began, but it has not been as successful as the Government might have liked.
	We heard a number of interesting suggestions from my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) and my hon. Friend the Member for Glasgow North East about the idea of a national investment bank as well as about how regional banking could be organised along the lines of the German model or in other ways to support SMEs. I hope that we can consider those issues as the Bill makes progress.
	We heard a couple of comments about whether the Bill would become known as the Clark-Javid Act. It has certainly seemed that it might end up being known as the Chancellor’s disappearing Act, given that he did not come to the Chamber and does not seem to have prioritised the debate today. When we discussed timetabling and the Committee, the shadow Chancellor asked the Financial Secretary whether he would take the opportunity to go out to track down the Chancellor and ask whether he would be prepared to amend the timetable to allow proper scrutiny of the Bill.
	In conclusion, we will not oppose the Bill’s Second Reading today because reforms are clearly needed, but there are many important policy changes that are conspicuous by their absence from the Bill, and those must be addressed as we proceed.

Sajid Javid: This has been a thoughtful and considered debate, led by my hon. Friend the Member for Chichester (Mr Tyrie) and his colleagues on the Parliamentary Commission on Banking Standards. I take this opportunity to thank my hon. Friend for his leadership of the parliamentary commission and to thank all the Members of the House and in the other place who have made contributions to that commission.
	I congratulate the hon. Member for Eastleigh (Mike Thornton) on an excellent maiden speech, and I welcome him to the House. I, too, spent quite a bit of time in Eastleigh over the past few weeks. I do not think I helped him get to the House, but now that he is here I congratulate him and wish him the very best. From what I heard today, I think he will make a fantastic contribution. Thank you.
	We heard a number of pertinent and considered contributions from both sides of the Chamber, and I am pleased to see widespread support throughout the House for the measures that the Government have put forward in the Bill. The support from the Opposition Benches for so many measures is an admission, at least from some Opposition Members, that they got it wrong during their time in office, and that, as my right hon. Friend the Chancellor has said, when the fire alarm was ringing, nobody was listening. That was a point well made by my hon. Friends the Members for Carlisle (John Stevenson) and for North East Cambridgeshire (Stephen Barclay).
	Nearly six years ago, we experienced the first run on a high street bank in over 100 years. Five years ago, the previous Government were forced to bail out both RBS and Lloyds, as well as to provide billions in support to
	the financial system. It was the worst financial crisis in a generation. It happened on their watch and it left this Government with a huge mess to clear up and with the task of restoring trust in the banking system and ensuring that taxpayers are unlikely ever again to have to step in to bail out banks. That is exactly what the Bill is designed to achieve. Ring-fencing will ensure that core services continue to be provided if a bank gets into trouble, and it will ensure that it is those who lend to banks and benefit in the good times who take losses when there are bad times.
	This is a crucial Bill for the future of banking in this country, and its seriousness has been reflected today by the Members who contributed—15 right hon. and hon. Members, and the Father of the House, my right hon. Friend the Member for Louth and Horncastle (Sir Peter Tapsell), who made a superb contribution. I will attempt to respond to as many of the issues they raised as possible.
	As my right hon. Friend the Chancellor has stated before, we have built a strong consensus around ring-fencing as the right structural reform, and others are following our lead. The proposals of Governor Liikanen and the high-level expert group draw heavily on this Government’s proposals and are entirely compatible with the Bill put forward by this Government. A number of Members, including my hon. Friends the Members for Chichester and for Caithness, Sutherland and Easter Ross (John Thurso), and the right hon. Members for Wolverhampton South East (Mr McFadden) and for Oldham West and Royton (Mr Meacher), raised the issue of the “electrification” of the ring-fence, as proposed by the parliamentary commission and accepted by the Government.
	It seems clear that the House is in broad agreement with this important addition to the Bill. The Government agree that a power to require an individual group to separate could be a powerful deterrent against attempts to game the ring-fence. This power would strengthen the ring-fence. The Government will therefore table an amendment while the Bill is before this House to provide for the regulator to have the power, subject to Treasury approval, to require a group to separate.
	On a related issue, several hon. Members have raised the proposal of the parliamentary commission that the Bill provide for sector-wide separation to be triggered at some, as yet undetermined, point in the future. The Government do not accept that proposal. The parliamentary commission is, in effect, asking the House to legislate two parallel policies: ring-fencing and full separation. That is despite the conclusion of the ICB, which rejected full separation in favour of ring-fencing, and despite the parliamentary commission producing no evidence in favour of sector-wide separation as an alternative. Indeed, the parliamentary commission accepts that there is no compelling case at present for full separation. That is why it recommends an independent review at some point in the future to consider whether full separation should be implemented.
	However, ring-fencing has already been endorsed by a thorough independent review, which undertook public consultation, extensive scrutiny and cost-benefit analysis lasting nearly three years before rejecting full separation. The Parliamentary Commission’s proposal to legislate for an alternative policy in case we change our view would, in the Government’s opinion, be bad law-making. If in the future a Government were to believe that ring-fencing was no longer appropriate, which they
	would be perfectly entitled to do, they should conduct a thorough analysis of the evidence, consider the arguments for and against, including perhaps by commissioning an independent review. If they concluded that a different approach was necessary, they should bring forward legislation for Parliament to consider in light of all the facts.
	Several Members referred to the Volcker rule, including my hon. Friend the Member for Wyre Forest (Mark Garnier). While some may support such a measure, after 18 months of consideration, Sir John Vickers did not recommend that the ring fence be supplemented by a ban on proprietary trading. When the parliamentary commission asked him whether a Volcker rule should be introduced on top of his ring fence, he warned that the complexity of such a rule could, by distracting regulators’ focus, actually undermine the ring fence. On top of that, in Europe, Governor Liikanen and his high level expert group noted how difficult it could be to distinguish between market making and proprietary trading. They also worried about pushing proprietary trading into the shadow banking sector, instead choosing to keep it within the regulated banking sphere. This Government are minded to agree with such an appraisal, and do not therefore see the benefit of a Volcker rule on top of ring-fencing.
	We have heard some interesting views on the leverage ratio. Let me be clear. The Government strongly support a robust leverage ratio and are pushing hard for full implementation of the Basel III leverage ratio in the EU via the capital requirements directive. The ICB and the parliamentary commission have both proposed that we increase the minimum leverage ratio above the 3% international standard set out in Basel III. The Government strongly support the idea of a minimum leverage ratio as a back-stop to risk-weighted capital requirements. But a higher leverage ratio would become a front-stop, the primary capital constraint on low-risk institutions, including building societies—a point made by the hon. Member for Bassetlaw (John Mann)—and one that could reduce essential lending to households. A front-stop leverage ratio would also create perverse incentives for these institutions to risk-up, because a leverage ratio does not distinguish between the safest assets, such as UK gilts, and the most risky assets. I do not think any hon. Member would like to see policies encouraging our safest banks and building societies, including those that weathered the last crisis quite well, to become more risky. So the Government are not persuaded by the arguments for a higher leverage ratio.
	We have also had a number of interesting interventions on primary loss absorbing capacity requirements, not least from the Chairman of the parliamentary commission. The Government are committed to ensuring that banks have the means to absorb losses should they get into trouble, and that those losses fall on those best able to assess the risk that they are taking. The Government agree that the ICB recommendation that ring-fenced banks, and UK-headquartered globally systemically important banks, should be subject to new PLAC standards. That will be 17% of risk-weighted assets for the largest banks. That extra capacity to absorb losses will improve resilience against shocks and mean that, if a bank does fail, it can be resolved without recourse to bank bail-outs.
	Some Members questioned who would decide whether banks should issue primary loss absorbing capacity against their overseas activities. The parliamentary
	commission recognised that the Treasury should have a role in shaping how the regulator applies primary loss absorbing requirements. That is because such decisions will be inextricably bound to the key Treasury objectives of protecting public finances and supporting long-term growth. The Government therefore believe that there is strong merit in the FSA’s suggestion that PLAC instruments and decisions should be made in the context of a firm’s resolution strategy. We will therefore make provision during the passage of the Bill to give effect to that.
	Members have also mentioned bail-ins, which were discussed at some length by the right hon. Member for Wolverhampton South East. Bail-in is an important statutory tool that helps to ensure that creditors, rather than taxpayers, expect to bear the costs in the event of bank failure. It is a particularly important tool for systemically important banks, where the impact of insolvency on the wider economy is large.
	To ensure that UK banks are not disadvantaged relative to international competitors, and because the task of resolving large cross-border banks is complex and requires close co-operation, it is important that the UK works with other countries to design a consistent bank bail-in tool that can work in relation to the resolution of cross-border institutions. We are therefore working closely with our European partners to develop a credible and effective bail-in tool as part of the European recovery and resolution directive. We are pleased that the Irish presidency has set out its intention to make rapid progress towards conclusion of the RRD. However, if agreement cannot be reached—we expect that it can—we will consider tabling amendments at a later stage in the Bill’s passage to allow the UK to act alone.
	We heard many thoughtful interventions on competition matters. We heard from my hon. Friends the Members for Wyre Forest, for Cities of London and Westminster (Mark Field), for Wycombe (Steve Baker) and for South Northamptonshire (Andrea Leadsom). The Government are committed to making changes to encourage greater competition in the banking sector. Many of those do not require legislation to take effect, and we have already acted in a number of ways. The FCA is now tasked, through the Financial Services Act 2012, with a competition objective, as Sir John Vickers, the former head of the Office of Fair Trading, recommended.
	While discussing competition, we also heard from a number of Members on what might be called alternative structures for banking. The hon. Member for Bassetlaw suggested that we move to the Chinese model, and the hon. Member for Hayes and Harlington (John McDonnell) suggested that we nationalise the entire banking sector. However well intentioned those proposals, I think that they are wholly misguided.

John Mann: It ill befits the Minister, when an hon. Member makes a point on three occasions, not to manage to listen to it. Perhaps he would care to consider the point I made: I dismissed the Chinese model and recommended the German model.

Sajid Javid: Well, let us talk about the German model. As someone who worked for a German bank for 10 years, I think I might know a little more about the German model than the hon. Gentleman does. The German model was the one that had to nationalise Commerzbank
	and other banks in the regional sector, and the largest bank in Germany was not without its own problems, such as the LIBOR scandal. He suggests the German model, but I do not really understand what the difference is.

John Mann: The difference between the German model and the model the Minister has at the moment is that the German model is lending to business.

Sajid Javid: I think that the hon. Gentleman needs to do some homework on the German model.
	Let me turn to switching. The Vickers commission made a number of recommendations on competition, one of which was for a seven-day switching service. That will go live in September this year. It will be free to use and will come with a guarantee to protect customers against financial loss in the event of any errors occurring during the switching process. A number of Members, not least my hon. Friend the Member for South Northamptonshire, made interesting points on full account number portability. The Government have always kept an open mind in that debate, arguing that the seven-day switching service should be allowed a good run. If it does not deliver the expected consumer benefits, more radical options will of course be looked at, including full account number portability.
	The structural reforms proposed in the Bill will of course aid competition. As the Bank of England’s executive director for financial stability, Anthony Haldane, said to the parliamentary commission, one of the biggest challenges we face on competition concerns is that banks are perceived as being too big to fail. The banking sector reforms made through the measures in this Bill are designed to address precisely that issue.

Andrea Leadsom: Does my hon. Friend agree, though, that the big banks will lobby extremely hard against greater competition, particularly full bank account number portability, and does he undertake to resist their lobbying attempts?

Sajid Javid: My hon. Friend makes a good point. The contents of the entire Bill show how the Government have already resisted the attempts of many in the banking lobby.
	My right hon. Friend the Chancellor—this will also interest my hon. Friend—has, as she will know, announced a consultation on bringing the payment system into regulation. We will make sure that new players in the market can access the payment system in a fair and transparent way and that they serve the needs of consumers, not those of established banks. Members may want to note that we will launch this consultation soon after the Budget. I am sure that my hon. Friend will want to make representations on full account portability to the consultation.
	Several hon. Members talked about RBS. The Government believe that RBS’s future is as a major UK bank with the majority of its businesses in the UK as regards personal, SME and corporate banking. United Kingdom Financial Investments Ltd continues to be responsible for managing the Government’s shareholding in RBS on a commercial and arm’s-length basis and for developing and executing a strategy for disposing of the
	investment in an orderly and active way. UKFI continues to look at a full range of options for disposing of the investment, and RBS should emerge as a stronger and safer bank able to maintain lending to businesses and consumers that can, in time, be returned to full private sector ownership.
	The Bill before us ensures that a future Government can keep bank branches going and cash machines operating while letting investment arms fail. It ensures that taxpayers will not fork out for the mistakes of others. Put simply, it deals with exactly the issues that are of concern to most of the UK public after the recent crisis. Financial services are a vital part of our economy, as evidenced by points well made by my hon. Friend the Member for Cities of London and Westminster, and they employ over 1 million people across the country. Let us not forget that the total tax take of the financial sector, including the income tax paid by its employees, adds up to over £60 billion—money that we rely on to fund our vital public services. It is crucial that we make sure that the British public again begin to trust the industry, that banks continue to serve families and businesses, and that the sector becomes what my right hon. Friend the Chancellor has described as a
	“financial industry that is strong, successful and inspires the pride of all those who work for it.”
	Question put and agreed to.
	Bill accordingly read a Second time.

Financial Services (Banking Reform) Bill (Programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),
	That the following provisions shall apply to the Financial Services (Banking Reform) Bill:
	Committal
	1. The Bill shall be committed to a Public Bill Committee.
	Proceedings in Public Bill Committee
	2. Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 18 April 2013.
	3. The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
	Consideration and Third Reading
	4. Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.
	5. Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
	6. Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.
	Other proceedings
	7. Any other proceedings on the Bill (including any proceedings on consideration of Lords Amendments or on any further messages from the Lords) may be programmed.—(Greg Clark.)
	The House divided:
	Ayes 277, Noes 218.

Question accordingly agreed to.

Financial Services (Banking Reform) Bill (Ways and Means)

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
	That, for the purposes of any Act resulting from the Financial Services (Banking Reform) Bill, it is expedient to authorise provisions requiring the charging by the Financial Conduct Authority, the Prudential Regulation Authority and the Bank of England of fees to meet expenditure of the Treasury relating to international organisations.—(Greg Clark.)
	Question agreed to.

Deferred Divisions

Motion made, and Question put forthwith (Standing Order No. 41A(3)),
	That, at this day’s sitting, (Standing Order No. 41A (Deferred divisions) shall not apply to the motion in the name of Mr Chancellor of the Exchequer relating to the Financial Services (Banking Reform) Bill (Carry-over). —(Anne Milton.)
	Question agreed to.

FInancial Services (Banking Reform) Bill (Carry-Over)

Motion made, and Question put forthwith (Standing Order No. 80A(1)(a)),
	That if, at the conclusion of this Session of Parliament, proceedings on the Financial Services (Banking Reform) Bill have not been completed, they shall be resumed in the next Session.—(Anne Milton.)
	Question agreed to.

Business without Debate

Delegated Legislation

Mr Speaker: With the leave of the House and for its convenience, I propose to take motions 5 to 15 together.
	Motion made, and Question put forthwith,

Companies

That the draft Companies Act 2006 (Amendment of Part 25) Regulations 2013, which were laid before this House on 10 January, be approved.

Legal Aid and Advice

That the draft Criminal Legal Aid (Determinations by a Court and Choice of Representative) Regulations 2013, which were laid before this House on 14 January, be approved.
	That the draft Civil Legal Aid (Costs) Regulations 2013, which were laid before this House on 21 January, be approved.
	That the draft Legal Aid (Information about Financial Resources) Regulations 2013, which were laid before this House on 21 January, be approved.

Constitutional Law

That the draft Police and Fire Reform (Scotland) Act 2012 (Consequential Provisions and Modifications) Order 2013, which was laid before this House on 22 January, be approved.

Pensions

That the draft Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2013, which was laid before this House on 30 January, be approved.

Social Security

That the draft Mesothelioma Lump Sum Payments (Conditions and Amounts) (Amendment) Regulations 2013, which were laid before this House on 4 February, be approved.
	That the draft Pneumoconiosis etc. (Workers’ Compensation) (Payment of Claims) (Amendment) Regulations 2013, which were laid before this House on 4 February, be approved.

Electricity

That the draft Renewables Obligation (Amendment) Order 2013, which was laid before this House on 4 February, be approved.

Tax Credits

That the draft Loss of Tax Credits Regulations 2013, which were laid before this House on 4 February, be approved.

Electronic Communications

That the draft Electronic Commerce Directive (Trafficking People for Exploitation) Regulations 2013, which were laid before this House on 28 January, be approved.—(Anne Milton.)
	Question agreed to.

Delegated Legislation (Committees)

Ordered,
	That the Measure passed by the General Synod of the Church of England, entitled Diocese in Europe Measure (HC 1020), which was laid before this House on 28 February, be referred to a Delegated Legislation Committee.—(Mr Lansley.)
	Ordered,
	That the Measure passed by the General Synod of the Church of England, entitled Clergy Discipline (Amendment) Measure (HC 1021), which was laid before this House on 28 February, be referred to a Delegated Legislation Committee.—(Mr Lansley.)

Mr Speaker: I issue my ritual appeal to Members leaving the Chamber, however unaccountably, to do so quickly and quietly so that the Adjournment debate can be launched by the hon. Member for Harwich and North Essex (Mr Jenkin).

ECONOMIC REGENERATION (HARWICH)

Motion made, and Question proposed, That this House do now adjourn.—(Anne Milton.)

Bernard Jenkin: I am extremely pleased to have secured this debate on regeneration in Harwich. Harwich is both typical and exceptional. Harwich, Dovercourt and the surrounding area have suffered from the economic dislocation and isolation that has affected so many seaside towns and ports in the past 60 years or so. Throughout the Anglo-Dutch war of the 1670s, when Samuel Pepys was the local MP and secretary to the Navy board, to the Napoleonic wars, when Nelson himself oversaw the construction of the town’s defences, and the two world wars of the 20th century, Harwich was a key naval base. It closed, however, after the second world war.
	During the ‘70s and ‘80s, the dock labour scheme drove the final nails into the coffin of the traditional ports industry, ensuring that the containerisation of freight was concentrated elsewhere. The huge opportunities promoted by Hutchison Ports for a five-berth container terminal at Bathside bay have so far been stymied by an excessively complex planning system and the downturn in world trade. Latterly, the chance of using that vast site for alternative economic development has been frustrated by the EU habitats directive.
	Over the years, the growth of civil aviation and the channel tunnel have intensified competition for Harwich as a gateway to Europe. As elsewhere, traditional manufacturing businesses have gradually died out and the sea fishing industry has declined to one small commercial boat. Furthermore, Harwich is at the extremity of the commuting distance from London—a fact not made any easier by recent decisions to end the running of direct trains to and from Liverpool Street. Such things show up in the unemployment figures: just 5.1% of people are recorded as unemployed in Harwich, but that is well above average for the county as a whole at 2.8%, and above the national average of 3.8%.
	Harwich is also exceptional. It has an outstanding history and heritage and is surrounded by the stunning Essex and Suffolk countryside and coast. The spirit of the place has not diminished and some industries thrive. Harwich has a specialist oil refinery and a major firework and explosives factory, and I watched on Friday as JCBs arrived at the old Navy yard for export. The railway, and the ferry and cruise liner terminal at Parkestone quay—now known as Harwich International—serve hundreds of thousands of passengers every year.
	However, Harwich desperately needs new jobs and new sources of wealth creation, as well as improved infrastructure, a recognition of the importance of high-speed broadband, and to ensure that the A120 has the appropriate designation at national and European level to attract the funds needed for improvement. The immediate and pressing issue is for Harwich to respond to the exceptional opportunities offered by the offshore wind energy sector, which now employs around 4,000 people in the UK. Harwich is the UK’s largest windport. It has extensive experience with the Gunfleet Sands Array and is currently working on the Greater Gabbard and London Arrays. It has deepwater facilities and it is ideally located to take advantage of billions of pounds of investment in the future Thames Array and East Anglia 1 Array in
	the North sea over the next 10 to 15 years. However, if we do not provide the necessary infrastructure of skills and businesses to serve the tier 1 primary contractors that deliver that investment, there is a real danger that business will be transferred not just elsewhere in the United Kingdom but out of the country altogether, perhaps to Flushing in Holland. I therefore very much welcome the fact that Harwich is to be at the centre of one of the nine employer ownership of skills pilots launched by the Department for Business, Innovation and Skills. It is questions about this that I wish my hon. Friend the Minister to address today.
	The Harwich scheme is called “Energising Harwich”, and is aimed at being a passport to work for local people across the Haven Gateway low carbon supply chain. The Government are injecting £875,000 into the scheme over two years. It is being led by the Colchester Institute, and I am grateful to Gary Home and Brian Cairns of the institute for arranging a briefing for me on Friday. That was attended by the lead employer, AJ Woods, a leading steel fabrication business that has already been closely involved in the development of the Gunfleet Sands and Greater Gabbard wind array, and part of a concerted attempt to attract wind energy inward investment to Harwich.
	The aim is to co-ordinate up to 40 other employers—small and medium-sized enterprises—in this scheme. A new social enterprise, the Harwich Mayflower project, aims to build a replica of the Pilgrim Fathers’ vessel, the Mayflower, which sailed from Harwich in 1620. It also aims to re-establish Harwich as a wooden boat and shipbuilding centre, providing training and apprenticeships for future generations.
	The chairman of the Haven Gateway initiative and the chief executive of Tendring district council were also present at our briefing. Tendring district council is taking a close interest not only in this debate but in the whole project. Essex county council was represented by county councillor Ricky Callender, who represents Harwich. Together, the institute and Tony Woods have appointed Mandy Morris as project manager for “Energising Harwich”. This is a formidable team infused with creativity and determination to succeed. There have been too many Government training initiatives with the aim of simply filling schemes with people who may well finish up with qualifications, but find that they are of little relevance to the requirements of local employers. The challenge for “Energising Harwich” is to ensure that the skills learned equip local people and enable them to apply for jobs that will otherwise go to people from outside the area.
	Working offshore is a huge challenge. Unlike Teesside, for example, Harwich has had zero involvement with the offshore oil and gas industry. The key to the success of this pilot will be the ability of local employers to train people in the particular skills for the particular jobs they have on offer; otherwise it will prove a waste of time and money. Success depends on a breadth and depth of understanding between employers and the Colchester Institute. Employers are having to adjust, because the scheme requires companies, who may well be competitors, to co-operate and to deliver it. They need to understand the constraints attached to public money. Culturally, it is also hard for traditional training providers, such as Colchester Institute, to adjust to allow commercialism to lead the allocation of the funds available, but they must be supported in doing so.
	I commend the Government for allowing the structure of this funding allocation to be so much more flexible than others before it so that it can fit employer needs. The UK Commission for Employment and Skills and the Skills Funding Agency should be congratulated. I am concerned, however, that it is too early to say how easy it will be in practice for the bid leader to provide the necessary paper trail to meet audit needs once the project is in progress. This is where I must press my hon. Friend the Minister to support necessary flexibility, or the pilot will fail.
	There are three other main hurdles for the pilot. One is that employers must provide match funding to the value of 50% of the training fees—a big ask for small companies in the present climate. The second concerns legislative accreditations, which are not covered under this or any other funded programme and yet are essential to the employers’ survival. In most cases, the life of such accreditations is only two years and full retraining is required again thereafter. Maybe some rationalisation training could be made. The pilot must have the flexibility to address that need, which includes statutory requirements for qualifications in manual handling, first aid and working at heights, and such things as machinery operation that are never, or very rarely, publicly funded. At Friday’s briefing, it was mentioned that even caterers and the food industry need to be trained to deliver support to offshore workers. These are referred to in the bid as “mandatory accreditations” and comprise a group of what are known as “tickets” that allow workers to go offshore. In their own way, they could be seen as legislative accreditations, but the bid explained that workers could not go out to sea without them and that each contractor required a different set. I would be grateful if the Minister confirmed that he is in favour of using this bid funding to support such training.
	Finally, working offshore places huge demands on these businesses as employers. This issue arose during conversations between the Colchester Institute and employers. Offshore contractors need ISO 9001 accreditation and to be registered with Achilles or First Point Assessment Ltd, the trade bodies that approve and monitor suppliers on behalf of the utility and offshore oil and gas industries. Without accreditation, businesses cannot bid for contracts. Applying for them takes time and can cost hundreds of thousands of pounds, but building the businesses’ capacity to operate and employ counts as much as does the training. There is a danger, however, that by concentrating on training the work force, this other aspect is neglected. Clearly, this support might not be available from the “Energising Harwich” fund, but funds will have to be found if these relatively small and vulnerable employers are to be able to compete effectively for the contracts on which these jobs will depend. I would be grateful if the Minister acknowledged that, and I look forward to his response, for which I am extremely grateful.

Matthew Hancock: I congratulate my hon. Friend the Member for Harwich and North Essex (Mr Jenkin) on securing the debate. The hour is late and we are deep into apprenticeships week, so it is right that we debate the importance of skills in his constituency. As he started with Samuel Pepys, so I shall start with Chaucer,
	who first mentioned apprenticeships more than 650 years ago. Although this is a novel and innovative project, it has a rich history.
	I was in Lowestoft earlier this month looking at the links between the skills system and the offshore industry developing all along the East Anglian coast. It is critical that, as new industries develop, we provide the necessary skills, but in the past our skills system has perhaps not been good at responding to the needs of new industries as they emerge. I am delighted that, like other parts of the country, my hon. Friend’s constituency is benefiting from the reinvigoration of apprenticeships. There was an 18% rise in the number of apprenticeships in his constituency last year and 740 starts.
	We must do more to make the system more rigorous and responsive to the needs of employers, however, and the employer ownership pilot is a critical part of that. It is about a shift towards delivering skills through the needs of employers and seeing employers as customers of vocational skills. That is the big picture for the employer ownership pilot, for which my hon. Friend has set out a crucial and innovative bid.
	In total, in round 1, which I announced within the first week of being in this position, the bid comprised £80 million of training activity over two years. The A. J. Woods proposal, “Energising Harwich”, is an important part of that, bringing together local employers, working together, and the Colchester Institute, as my hon. Friend said. Bringing together different players in the consortium also ensures that the whole supply chain gets the chance to participate in the skills enhancements that are supported.
	Regional employers in the project will contribute some £3 million over two years, which will be supported by more than £850,000 in public sector funding. The first thing he asked about was the need for flexibility in the paper trail and the audit. This is a pilot scheme, the purpose of which is to investigate new ways of delivering skills that employers need, in exactly the way he described, in order to support wider regeneration efforts. It is therefore crucial that we keep under constant review the audit needs and the bureaucracy surrounding the bids. With public sector money it is critical to have appropriate audit. However, we have to ensure that that does not get in the way of delivering the project. I will therefore take that point away and very much keep my eye on it, as the project develops, and try to ensure that the burden is minimal, considering the necessity for good audit, given that we are putting public sector money into the project.
	My hon. Friend’s second point was about match funding of 50%. Co-funding of skills provision is an important principle. The beneficiaries are the wider economy and the employer, as well as the individuals who do the training. In this case the 50% match funding was agreed locally as part of the bidding process. It was not a ratio set by the Department for Business, Innovation and Skills, although we require some co-funding. Of course I recognise the challenge for some companies, especially smaller ones, in contributing their own cash and time, and it is appropriate that the model was developed locally.

Bernard Jenkin: I am listening carefully to my hon. Friend. The first two concerns might be related, because the permanent secretary in his Department, as the chief accounting officer, will need to be satisfied that match funding has been delivered. However, given the way in
	which time and benefits in kind are costed in a small business, we all know that it is rather unlikely that some hard and fast, actuarially justifiable figure for match funding will be available. I therefore suggest that a little flexibility or generosity of understanding of what has been committed to meet the match funding will be required, and it is the accounting officer in my hon. Friend’s Department who will have to be satisfied.

Matthew Hancock: That is an important point. In a way, it answers the question about the need for flexibility in the audit requirements and the need for the accounting officer in the Department to be content that this is an efficient and effective use of public money, as well as being confident about surviving the ferocity of the Public Accounts Committee, should any hearing take place—not that there needs to be one on this subject.

Bernard Jenkin: Forgive me, but my other point was that the businesses that are providing the 50% matched funding will account for it from their own resources. Some of these small businesses have their accounts audited, but they probably do not have the sort of comprehensive audit that one would expect of a bank or a major manufacturing business. There will have to be some leeway on that and, not so much a flexibility, but a recognition that everything is being done in good faith, rather than as a means of defrauding the taxpayer and getting away with committing less than 50%.

Matthew Hancock: Yes, I recognise that that is a strong argument. We are running this pilot precisely to work out those kinds of issues, especially with respect to small businesses, with which the Government are, frankly, not particularly well equipped to deal. We do not have a good history of engaging with them, and skills is an area in which the Government as a whole need to improve.
	That links to my hon. Friend’s third point, which was funding for legislative accreditations, or accreditations that are near-legislative. The skills system has a general rule that legislative accreditations should be paid for by the employer, so as not to crowd out private sector funding with public sector funding, except in the case of unemployed people who need accreditations in order to get a job and who have no employer to take on the burden.
	There is a link to co-funding. We recognise that funding for accreditations can in some cases be expensive. In many cases it is necessary, and it also forms part of the co-funding of the project. The two can therefore be
	linked. A limited amount of resources goes into skills funding, and we try to focus it on skills that are transferable and that would not otherwise be paid for by an employer. After all, there is a £40 billion to £50 billion economy in skills provision across the whole economy, and the Government budget for adult skills is £4 billion, so it is important that we do not end up trying to pay for the entirety of training across the whole economy. We simply would not be able to afford that.
	Those are my responses to my hon. Friend’s specific points, but I want to give him a broader, more generic, response as well. We are going into round 2 of the employer ownership pilot. The bids for round 1 of the pilot are important, in that we can learn from them how the system can work better and in different and innovative ways. This is an innovative example of companies large and small coming together to provide for a specific need, so it is important for the Government to learn from what works and what does not, and to change what needs to be changed to make the pilot deliver.
	This is called the employer ownership pilot for a reason. Each of the projects is, in itself, a pilot, and I give my hon. Friend the undertaking that I shall take a personal interest in his project. I shall ensure that the necessary understanding of the context of running a small business and the costs relating to time that he mentioned are taken into account. I will ensure that I watch his project very closely, because it has the potential to unlock a new industry in an area that, for too long, has not had the vibrancy of a new industry. It has the potential to do a lot, not only for the town but all the way up the East Anglian coast. I will take away the points that he has raised and look into them in more detail.
	I congratulate A. J. Woods on the work that it has done, but I also urge the company to work closely with others to bring the project to fruition. As my hon. Friend said, the area has higher unemployment than elsewhere in the region, as well as skills shortages. That tells me that, for too long, the skills system has not been working properly. Where we have unemployment alongside skills shortages, there has been a problem. It is my job to try to fix that, and the employer ownership pilot is an important element of finding the solution. I want to work hard to make it happen and to learn what the Government need to do to deliver better and innovative skills, and I shall be happy to work with my hon. Friend on that.
	Question put and agreed to.
	House adjourned.